Research Topics

Can Green Spending Reduce Gender and Race Inequalities?

Announced in June 2021, the never-implemented Green Recovery Plan for the Brazilian Legal Amazon Region (GRP) would be a green transition initiative to be carried out by the state governments of the region. The GRP represented the first large-scale proposal aiming at the transition to a low-carbon economy in Brazil and offered a preliminary framework to evaluate the opportunities and limitations of green development in Global South economies. The GRP's initial phase would provide an investment of 1.5 billion reais (around $315 million in September 2023) in four areas: control of illegal deforestation, sustainable development, green technology, and green infrastructure. This article presents a counterfactual analysis by assessing the impacts of green spending in Amazon on the labor market, quantitatively—in terms of the number of jobs created—and qualitatively—exploring the distribution of those jobs by region and according to gender and race categories. We build synthetic sectors representing each area of investment in a two-region input-output matrix (“Brazilian Amazon” and “Rest of Brazil”). Using employment multipliers, we simulate a demand shock on the Amazonian economy and its impact on job creation in the two regions.  Results suggest that green spending in the Amazon offers good perspectives (but also highlights limitations) for a just transition to a low-carbon economy in Brazil: the effects on employment favored the female workforce (both black and white) relative to the male and black workforce in the Amazon, leading to inequality-reducing composition changes in the Brazilian workforce as whole.

A Comment on Autor and Salomons

We show that Autor and Salomons’ (2017, 2018) analysis of the impact of technical progress on employment growth is problematic. When they use labor productivity growth as a proxy for technical progress, their regressions are quasi-accounting identities that omit one variable of the identity. Consequently, the coefficient of labor productivity growth suffers from omitted-variable bias, where the omitted variable is known. The use of total factor productivity (TFP) growth as a proxy for technical progress does not solve the problem. Contrary to what the profession has argued for decades, we show that this variable is not a measure of technical progress. This is because TFP growth derived residually from a production function, together with the conditions for producer equilibrium, can also be derived from an accounting identity without any assumption. We interpret TFP growth as a measure of distributional changes. This identity also indicates that Autor and Salomons’ estimates of TFP growth’s impact on employment growth are biased due to the omission of the other variables in the identity. Overall, we conclude that their work does not shed light on the question they address.

The Great Recession had a devastating impact on labor force participation and employment. This impact was not unlike other recessions, except in size. The recovery, however, has been unusual not so much for its sluggishness but for the unusual pattern of recovery in employment by race. The black employment–population ratio has increased since bottoming out in 2010, while the white employment–population ratio has remained flat. This paper examines trends in labor force participation and employment by race, sex, and age and determines that the explanation is a combination of an aging white population and an increase in labor force participation among younger black people. It estimates the likelihood of labor force participation and employment among young men and women to control for confounding factors (such as changes in educational characteristics) and decomposes the gaps among groups and the changes over time in labor force participation using a Oaxaca-Blinder-like technique for nonlinear estimations. Findings indicate that much smaller negative impacts of characteristics and greater returns to characteristics among young black men and women than among young white men and women explain the observed trends.

Some Lessons from Ghana and Tanzania

In this policy note, Thomas Masterson and Ajit Zacharias address the nexus between wage employment, consumption poverty, and time deficits in the context of Ghana and Tanzania. Based on a recently completed research project supported by the Hewlett Foundation, the authors apply the Levy Institute Measure of Time and Consumption Poverty (LIMTCP) to estimate whether the jobs that are likely to be available to potential employment-seeking, working-age individuals in consumption-poor households—who are predominantly female in both countries—can serve as vehicles of “economic empowerment.” They investigate this question using two indicators of empowerment, asking (1) whether the individual would be able to move their household to at least a minimal level of consumption via the additional earnings from their new job and (2) whether the individual would be deprived of the time required to meet the minimal needs of care for themselves (personal care), their homes, and their dependents.

A Distributional Analysis of the Care Economy in Turkey

This paper examines the aggregate and gender employment impact of expanding the early childhood care and preschool education (ECCPE) sector in Turkey and compares it to the expansion of the construction sector. The authors’ methodology combines input-output analysis with a statistical microsimulation approach. Their findings suggest that the expansion of the ECCPE sector creates more jobs and does so in a more gender-equitable way than an expansion of the construction sector. In particular, it narrows the gender employment and earnings gaps, generates more decent jobs, and achieves greater short-run fiscal sustainability.

The Fed’s Unjustified Rationale

In December 2015, the Federal Reserve Board (FRB) initiated the process of “normalization,” with the objective of gradually raising the federal funds rate back to “normal”—i.e., levels that are “neither expansionary nor contrary” and are consistent with the established 2 percent longer-run goal for the annual Personal Consumption Expenditures index and the estimated natural rate of unemployment. This paper argues that the urgency and rationale behind the rate hikes are not theoretically sound or empirically justified. Despite policymakers’ celebration of “substantial” labor market progress, we are still short some 20 million jobs. Further, there is no reason to believe that the current exceptionally low inflation rates are transitory. Quite the contrary: without significant fiscal efforts to restore the bargaining power of labor, inflation rates are expected to remain below the Federal Open Market Committee’s long-term goal for years to come. Also, there is little empirical evidence or theoretical support for the FRB’s suggestion that higher interest rates are necessary to counter “excessive” risk-taking or provide a more stable financial environment.

New methodology for producing employment microsimulations is introduced, with a focus on farms and household nonfarm enterprises. Previous simulations have not dealt with the issue of reduced production in farm and nonfarm household enterprises when household members are placed in paid employment. In this paper, we present a method for addressing the tradeoff between paid employment and the farm and nonfarm business activities individuals may already be engaged in. The implementation of the simulations for Ghana and Tanzania is described and the quality of the simulation results is assessed.

A technical analysis shows that the doomsayers who support the euro at all costs and those who naively theorize that a single currency is the root of all evil are both wrong. A euro exit could be a way of getting back to growth, but at the same time it would entail serious risks, especially for wage earners. The most important lesson we can learn from the experience of the past is that the outcome, in terms of growth, distribution, and employment, depends on how a country remains in the euro; or, in the case of a euro exit, on the quality of the economic policies that are put in place once the country regains control of monetary and fiscal matters, rather than on abandoning the old exchange system as such. It all depends on how a country stays in the eurozone, or on how it leaves if need be.

The American Jobs Act now before Congress relies largely on a policy of aggregate demand management, or “pump priming”: injecting demand into a frail economy in hopes of boosting growth and lowering unemployment. But this strategy, while beneficial in setting a floor beneath economic collapse, fails to produce and maintain full employment, while doing little to address income inequality. The alternative? Fiscal policy that directly targets unemployment by providing paid work to all those willing to do their part.

This paper reconsiders fiscal policy effectiveness in light of the recent economic crisis. It examines the fiscal policy approach advocated by the economics profession today and the specific policy actions undertaken by the Bush and Obama administrations. An examination of the labor market renders the contemporary aggregate demand–management approach wholly inadequate for achieving certain macroeconomic objectives, such as the stabilization of investment and investor expectations, the generation and maintenance of full employment, and the equitable distribution of incomes. The paper reconsiders the policy effectiveness of alternative fiscal policy approaches, and argues that a policy that directly targets the labor demand gap (as opposed to the output gap) is far more effective in stabilizing employment, incomes, investment, and balance sheets.