Macroeconomic policy

Manudeep Bhuller, Magne Mogstad, Kjell G. Salvanes, 22 September 2014

The impact of education on earnings over the life cycle is a critical factor for policy decisions ranging from education to taxation and pensions. This column exploits a unique Norwegian population panel data set to estimate an internal rate of return to additional schooling of about 10%. The standard Mincer-regression approach is also shown to substantially underestimate schooling’s rate of return.

Heiwai Tang, Wenjie Chen, 22 September 2014

Using a new, unique, and comprehensive data set that covers close to 19,000 Chinese ODI deals from 1998 to 2011, we find that in contrast to the common perception, over half of the ODI deals are in service sectors, with many of them appearing to be related to export promotion. Ex ante larger, more productive, and more export-intensive firms are more likely to start investing abroad. Ex post, ODI appears to enhance firm performance (i.e., total factor productivity, employment, export intensity, and product innovation). Empirical analysis based on firms’ trade transaction data shows a significantly positive effect of ODI on firms’ trade performance, but little technology transfer.

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%.

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