The economic impact of inward FDI on the US
Theodore H. Moran, Lindsay Oldenski, 4 March 2014
The US has once again ranked among the top two recipient countries for foreign direct investment. This column examines the effects of these large FDI inflows on the US domestic economy. Foreign multinationals are – alongside US-headquartered American multinationals – the most productive and highest-paying segment of the US economy. In addition, they provide positive spillovers to US firms. About 12% of the total productivity growth in the US from 1987 to 2007 can be attributed to productivity spillovers from inward FDI.
The US is the second-largest recipient of FDI in the world, behind China, and by far the largest target for FDI among OECD countries (OECD 2013). The numbers are large ($253 billion for the US), and the gap with the next-largest in the OECD is impressive ($63 billion for the UK and $62 billion for France in 2012).
Topics: Productivity and Innovation
Tags: FDI, multinationals, productivity, R&D, spillovers, US, wages
Competing successfully in a globalising world: Lessons from Lancashire
Nicholas Crafts, Nikolaus Wolf, 22 October 2013
Europeans worry about competition from low-wage economies. This column looks at the basis of the success of the 19th-century Lancashire cotton industry faced with a similar situation. The message is that the productivity benefits of a successful agglomeration can underpin both high wages and competitive advantage in world trade. Policymakers can support such agglomerations by easing land-use restrictions, promoting investments in transport, and providing local public goods.
The ‘first globalisation’ of the 19th century – driven by the substantial falls in trade costs associated with the age of steam – saw the ‘First Unbundling’ (Baldwin 2006), in which industrial production and consumption became spatially separated, often by large distances.
Topics: Economic history, International trade
Tags: agglomeration, cities, cotton, globalisation, Industrial Revolution, industrialisation, Lancashire, trade, wages
The long-run gains of not mixing genders in high-school classes
Massimo Anelli, Giovanni Peri, 23 February 2013
What causes fewer women than men to choose high-earning potential subjects such as engineering, economics or science at undergraduate level? This column presents new evidence from an accidental natural experiment in Italy, suggesting mixed-gender classes at the high-school level reduce the number of women pursuing these subjects. These results suggest that gender-separated classrooms are an effective way to increase women’s career opportunities and salaries.
Gender gap in college majors and earnings
Topics: Education, Gender, Labour markets
Tags: education, gender, Italy, labour, wages, women
The case for temporary inflation in the Eurozone
Stephanie Schmitt-Grohe, Martín Uribe, 16 September 2012
Since the onset of the great recession in peripheral Europe, nominal hourly wages have not fallen much from the high levels they had reached during the boom years in spite of widespread increases in unemployment. This paper analyses a number of national and supranational policy options for alleviating the unemployment problem, arguing that it is unlikely that a solution will come from within national borders.
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Topics: Labour markets
Tags: Eurozone crisis, Great Recession, unemployment, wages
Why are migrants paid more? Evidence from Italian football
Alex Bryson, Rob Simmons, Giambattista Rossi, 8 May 2012
Are migrants paid more or less than their native colleagues? This column provides a unique insight by looking at data from an industry where there are many foreigners and where their relative quality can be easily measured – professional football in Italy.
Are migrants paid more or less than natives for doing the same or similar work and, if they are paid differently, can we be sure that it is due to their migrant status rather than to other differences between migrants and natives, such as their productivity levels?
Topics: Labour markets
Tags: Football, Italy, migrants, wages
Apart from the fiscal compact – on competitiveness, nominal wages and labour productivity
Marga Peeters, Ard den Reijer, 3 January 2012
While EU leaders are drafting a fiscal compact, the problem of intra-European real exchange-rate misalignments remains. This column argues that reducing imbalances implies a focus on competitiveness, and hence on the alignment of nominal-wage growth with labour-productivity growth.
Eurozone members that face the consequences of severe asymmetric shocks can, in the absence of labour mobility, accommodate by means of fiscal transfers. In order to avoid becoming a one-way transfer union from the core to the periphery, the EU needs to address structural imbalances and persistent current-account deficits and surpluses that are due to real exchange-rate misalignment.
Topics: EU policies, Productivity and Innovation
Tags: eurozone, productivity, wages
Services offshoring increases wage inequality
Holger Görg, Ingo Geishecker, Christiane Krieger-Boden, 24 December 2011
The effects of offshoring on wages remain a hotly debated issue. This column explores the case of UK firms between 1992 and 2004, recognising that offshoring in one particular industry may also affect labour demand in other industries. It suggests that services and materials offshoring increase the wages of high-skilled workers and decreases the wages of low- and medium-skilled workers, thus contributing to a rising wage inequality.
Offshoring from industrialised countries always evokes hot debate in public and academic circles. Worries concern a loss of employment opportunities in unskilled jobs at one point, and in high-skilled jobs at another. Other worries concern the suspected devaluation of unskilled labour.
Topics: International trade
Tags: offshoring, UK, wages
Does income cause happiness: Evidence from industrial wage dispersion
Jörn-Steffen Pischke, 3 June 2011
Economists have been venturing into the realm of human emotions for some years now. This column provides a unique approach to investigating the link between income and happiness. It finds that while money really can buy happiness, there are many other factors that can get in the way.
Anyone interested in the sources of joy and misery among (wo)mankind would do well turning to world literature. Tolstoy, of course, famously observed in Anna Karenina that “happy families are all alike; every unhappy family is unhappy in its own way” (Tolstoy 1877). Maybe this is why tragedy is often the more alluring genre.
Topics: Frontiers of economic research, Poverty and income inequality
Tags: economics of happiness, happiness, wages
Are skill-intensive imports from rich nations deskilling emerging economies?
Raphael Auer, 10 December 2010
Do skill-intensive imports from rich nations reduce skill accumulation in emerging economies? This column presents new evidence from 41 emerging economies to suggest that being close to the global supply of skilled labour decreases domestic human capital. A one-standard deviation higher geographic proximity to skilled labour is associated with a 12% lower average education length of the country’s workforce. This may have profound consequences for the ability of poorer nations to catch up with richer ones.
Among economists and policymakers alike, there is now a sense of agreement that import competition from low-wage countries has caused a decline in the relative wage of unskilled workers in rich nations, probably best summarised by Krugman’s verdict that the impact of trade on wages “is big, and getting bigger” (see
Topics: Development, Education, International trade
Tags: development, education, emerging economies, international trade, wages