Global governance

Peter Cappelli, 21 September 2014

Many high-paying jobs in the US cannot be filled, raising concerns about an existing skills gap. However, this column does not find evidence in support of serious skills gap or shortages in the US labour force. Similarly to other developed economies, the prevailing situation in the US is due to skill mismatches. This could have implications for students and their tuition-paying families.

Joanne Lindley, Steven McIntosh, 21 September 2014

Individuals who work in the finance sector enjoy a significant wage advantage. This column considers three explanations: rent sharing, skill intensity, and task-biased technological change. The UK evidence suggests that rent sharing is the key. The rising premium could then be due to changes in regulation and the increasing complexity of financial products creating more asymmetric information.

Marius Zoican, 20 September 2014

Technological advances in equity markets entered the spotlight following the Flash Crash of May 2010. This column analyses the advantages and disadvantages of algorithmic and high-frequency trading. Ever-faster exchanges do not always improve liquidity. Following a speed upgrade in the Nordic equity markets, effective spreads posted by high-frequency traders increased by 32%.

Robert Engle, Eric Jondeau, Michael Rockinger, 20 September 2014

With the recent Global Crisis, the interest in systemic risk and the interconnection between financial institutions has increased. This column investigates the case of European financial firms, where several factors can jeopardise a firm’s financial health. Using data since 2000 to evaluate the firms’ systemic risk, the authors find that for certain countries, the cost to rescue the riskiest domestic banks is too high. They might be considered too big to be saved.

Daron Acemoglu, Matthew O. Jackson, 19 September 2014

Social norms shape interactions but can be in conflict with new laws, often making such laws ineffective. This column presents new research on the interplay of laws and norms. High law-breaking induces less private cooperation, increasing the law-breaking further. For a successful change in behaviour, gradual imposition of new laws is recommended. An important aspect is that these new laws should not be in a strong conflict with the existing norms. 

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