The rapid growth of the US financial sector has driven policy debate on whether it is socially desirable. This column examines the trade-off between finance and entrepreneurship, and links the growth of finance to rising wealth inequality. Although financial intermediation helps allocate capital efficiently, people choosing a career in finance do not internalise the negative effect on the pool of talented entrepreneurs. This mechanism can explain the simultaneous growth of wealth inequality and finance in the US, and why more unequal countries have larger financial sectors.
Kirill Shakhnov, Saturday, January 17, 2015
Antonio Cabrales, Juan Dolado, Ricardo Mora, Friday, December 5, 2014
The negative consequences of dual labour markets have been extensively documented, but so far little attention has been paid to their effects on workers’ on-the-job training and cognitive skills. This column discusses evidence from PIAAC – an exam for adults designed by the OECD in 2013. Temporary contracts are associated with a reduction of 8–16 percentage points in the probability of receiving on-the-job training, and this training gap can explain up to half of the gap in numeracy scores between permanent and temporary workers.
Victor Lavy, Avraham Ebenstein, Sefi Roth, Thursday, November 20, 2014
Admission to higher education often depends on the results of high-stakes tests, but assessing the consequences of having a ‘bad day’ on such tests is challenging. This column provides evidence from a dataset on Israeli high-school students. Random variations in pollution have measurable effects on exam performance, and these in turn have significant effects on students’ future educational and labour-market outcomes. The authors argue that placing too much weight on high-stakes exams may not be consistent with meritocratic principles.
Claudio Michelacci, Hernán Ruffo, Tuesday, November 18, 2014
Like any insurance mechanism, unemployment benefits involve a trade-off between risk sharing and moral hazard. Whereas previous studies have concluded that unemployment insurance is close to optimal in the US, this column argues that replacement rates should vary over the life cycle. Young people typically have little means to smooth consumption during a spell of unemployment, while the moral hazard problems are minor – regardless of replacement rates, the young want jobs to improve their lifetime career prospects and to build up human capital.
Marco Annunziata, Saturday, August 16, 2014
Africa has generated a lot of enthusiasm lately. The cynical view of the continent as a hopeless basket case has been replaced by the lofty narrative of Africa Rising. This column argues that Africa’s progress is impressive, and there is more to the story than a commodity boom. But Africa is at a crossroads. The opportunities are huge, but the road ahead is long, and will require persistent and patient effort from policymakers as well as business.
Raphael Boleslavsky, Christopher Cotton, Saturday, August 16, 2014
Grade inflation is widely viewed as detrimental, compromising the quality of education and reducing the information content of student transcripts for employers. This column argues that there may be benefits to allowing grade inflation when universities’ investment decisions are taken into account. With grade inflation, student transcripts convey less information, so employers rely less on transcripts and more on universities’ reputations. This incentivises universities to make costly investments to improve the quality of their education and the average ability of their graduates.
Nico Voigtländer, Mara Squicciarini, Sunday, July 13, 2014
Although studies of contemporary economies find robust associations between human capital and growth, past research has found no link between worker skills and the onset of industrialisation. This column resolves the puzzle by focusing on the upper tail of the skill distribution, which is strongly associated with industrial development in 18th-century France.
Amparo Castelló-Climent, Rafael Doménech, Wednesday, April 23, 2014
Most developing countries have made a great effort to eradicate illiteracy. As a result, the inequality in the distribution of education has been reduced by more than half from 1950 to 2010. However, inequality in the distribution of income has hardly changed. This column presents evidence from a new dataset on human capital inequality. The authors find that increasing returns to education, globalisation, and skill-biased technological change can explain why the fall in human capital inequality has not been sufficient to reduce income inequality.
Shelly Lundberg, Robert A. Pollak, Tuesday, October 29, 2013
Marriage patterns have changed in the last 50 years as fertility rates declined and cohabitation became more widespread. These trends can be explained by a shift in the gains from marriage away from specialisation and towards investment in children. This column argues that different patterns in childrearing are key to understanding class differences in marriage and parenthood. Heterogeneity in preferences for – or ability to invest in – child human capital explain marriage and fertility patterns across socioeconomic groups.
Markus Brückner, Mark Gradstein, Thursday, April 4, 2013
Average income per capita is strongly correlated with more schooling, but this relationship is more complex than it appears. This column presents new research showing that a large part of the correlation is attributed to the causal effect of economic prosperity on the formation of human capital via schooling.
Janet Currie, Saturday, July 19, 2008
What explains the poverty trap? This column summarises a vast array of evidence on the relationship between parents’ socioeconomic status, children’s health, and children’s future socioeconomic outcomes. Poverty worsens childhood health, which leads to adulthood poverty. Focusing on young mothers’ health and wellbeing could break the cycle.
Emilia del Bono, Andrea Weber, Rudolf Winter-Ebmer, Monday, February 25, 2008
Over the last century careers or jobs that provide opportunities for promotion and advancement have become more desirable for females and labour market conditions that impede the establishment of stable careers early in their lives like unemployment, temporary jobs or involuntary turnover, may be reasons for a delay or even a permanent reduction in fertility. The authors of CEPR DP6719 explore how women’s fertility decisions are affected by these considerations and find that certain stages of their careers might be particularly sensitive to labour supply interruptions.
Thorvaldur Gylfason, Friday, January 25, 2008
Are some African economies poised for prolonged growth and human development? This article assesses African development prospects using Iceland’s economic ascent over the last century as a benchmark.
Josep Pijoan-Mas, Claudio Michelacci, Monday, May 28, 2007
Since the 1970s, the number of hours worked per employee has fallen substantially in continental Europe, while it has remained roughly constant in the US. The authors of CEPR DP6314 show that this divergence in the number of hours worked per employee on the two sides of the Atlantic can be explained by the evolution of the respective labour market conditions over the last three decades.