Offshoring and Directed Technical Change
That will have been one of the most important papers of this year and it is by Daron Acemoglu, Gino Gancia, and Fabrizio Zilibotti. Read every sentence of the abstract carefully because each one matters!:
To study the short-run and long-run implications on wage inequality, we introduce directed technical change into a Ricardian model of offshoring. A unique final good is produced by combining a skilled and an unskilled product, each produced from a continuum of intermediates (tasks). Some of these tasks can be transferred from a skill-abundant West to a skill-scarce East. Profit maximization determines both the extent of offshoring and technological progress. Offshoring induces skill-biased technical change because it increases the relative price of skill intensive products and induces technical change favoring unskilled workers because it expands the market size for technologies complementing unskilled labor. In the empirically more relevant case, starting from low levels, an increase in offshoring opportunities triggers a transition with falling real wages for unskilled workers in the West, skill-biased technical change and rising skill premia worldwide. However, when the extent of offshoring becomes sufficiently large, further increases in offshoring induce technical change now biased in favor of unskilled labor because offshoring closes the gap between unskilled wages in the West and the East, thus limiting the power of the price effect fueling skill-biased technical change. The unequalizing impact of offshoring is thus greatest at the beginning. Transitional dynamics reveal that offshoring and technical change are substitutes in the short run but complements in the long run. Finally, though offshoring improves the welfare of workers in the East, it may benefit or harm unskilled workers in the West depending on elasticities and the equilibrium growth rate.
In this paper you will find a ray of hope, namely “…when the extent of offshoring becomes sufficiently large, further increases in offshoring induce technical change now biased in favor of unskilled labor because offshoring closes the gap between unskilled wages in the West and the East, thus limiting the power of the price effect fueling skill-biased technical change.”
And this:
The unequalizing impact of offshoring is thus greatest at the beginning. Transitional dynamics reveal that offshoring and technical change are substitutes in the short run but complements in the long run.
Of course we will see, but if you wish to be ahead of the game, spend your time pondering those propositions. Ungated copies are here.
The truly clever will solve this model for some analogous propositions about robots.
“Did the Community Reinvestment Act (CRA) Lead to Risky Lending?”
The first sentence of the abstract of this paper reads “Yes, it did.” Please don’t take this as support for whackier theories of the cause of the crisis, but as to whether this was an amplifying mechanism, well it seems it was. I have never myself been obsessed with this question, or pushing the significant relevance of the CRA theories, but earlier this received so much attention in the blogosphere, and it led to so many excoriations, I thought I would pass this new result along.
An ungated copy is here.
Israel notes
The food is quite good, as is the gelato. Don’t forget the Libyan, Ethiopian, and Yemeni offerings.
Poverty is more evident than I had expected, and one wonders whether extreme Israeli income inequality is a harbinger of a broader global future. A simple, small bottle of mouthwash costs about $10. It is surprising, for this American, to see beggars wearing yarmulkes.
How much of the high cost of living here is from inefficient retail and consolidation? How much from “the Island effect”? Since the locals feel the high costs too, we cannot rely on the productivity of the tradeables sector as an explanation. As for the rent, when it comes to construction permits, Israel ranks #137 (!, pdf) on the World Bank’s Doing Business Index. Yet the quality of the construction is often somewhat ramshackle, although I expect the Wall and the Iron Dome to last for some while.
Cost of living aside, I imagine living in Tel Aviv as quite pleasant, and I prefer it to most of the other Mediterranean cities I have visited. The Israel Museum in Jerusalem displays its collection wonderfully.
This place is now a preliminary R&D laboratory for good U.S. TV shows. Hani Furstenberg is Israeli, it turns out, and Tel Aviv has been named the world’s #2 city for high-tech start-ups.
I am basing this following comment on a limited sample, but so far I have found this country to have a disproportionately large share of taxi drivers who are Jewish, at least compared to anywhere else I have visited.
The Segway seems to have some commercial viability in Israel.
Sometimes the security question consists simply of “Do you have a weapon?” I do not.
Against my expectation, Jerusalem is a more populous city than Tel Aviv.
Natasha cannot pass for an American here.
Assorted links
1. Iris-scanning in the fight against Indian poverty.
2. Amazing Kreskin offers to fix the fiscal cliff.
3. An Edge talk with Philip Tetlock, and pre-registration for the forecasting website. Forecasters are needed for his very important project.
4. David Warsh on Shapley and other stuff.
5. Some catfish kill pigeons, and how good were cavemen as animal artists?
India, India, India!
Today at MRUniversity we release the first of our country sections, India. In nearly 50 videos we cover key aspects of India’s history, economics, politics and culture from the viewpoint of development economics. Among the topics are India’s Early Growth History, Gandhi and the Salt March, the Green Revolution, Food Crises and the Media, the Rise of Private Education in India, and the Economics of Bollywood.
Tyler and I will both be in Delhi on Thursday December the 20th to talk to students of MRUniversity and others about economics, development and the future of online education. Information on times and places to follow.
By the way, for those of you taking the Development Economics course the India material is bonus to be sampled at will – this won’t be on the exam!
MRU also introduces new features this week including user contributions of links, videos and other materials directly from the video pages, ordering of questions by votes or recency and easier ways to see and access related materials and user contributions.
Just how bad is corruption in China?
In a new paper, my colleague Carlos Ramirez has the scoop:
Abstract:
This paper compares corruption in China over the past 15 years with corruption in the U.S. between 1870 and 1930, periods that are roughly comparable in terms of real income per capita. Corruption indicators for both countries and both periods are constructed by tracking corruption news in prominent U.S. newspapers. Several robustness checks confirm the reliability of the constructed corruption indices for both countries. The comparison indicates that corruption in the U.S. in the early 1870s — when it’s real income per capita was about $2,800 (in 2005 dollars) — was 7 to 9 times higher than China’s corruption level in 1996, the corresponding year in terms of income per capita. By the time the U.S. reached $7,500 in 1928 — approximately equivalent to China’s real income per capita in 2009 — corruption was similar in both countries. The findings imply that, while corruption in China is an issue that merits attention, it is not at alarmingly high levels, compared to the U.S. historical experience. The paper further argues that the corruption and development experiences of both the U.S. and China appear to be consistent with the “life-cycle” theory of corruption — rising at the early stages of development, and declining after modernization has taken place. Hence, as China continues its development process, corruption will likely decline.
New Health Care Taxes
Robert Pear at the NYTimes has a good piece on the high-income taxes already scheduled to begin in January:
For more than a year, politicians have been fighting over whether to raise taxes on high-income people. They rarely mention that affluent Americans will soon be hit with new taxes adopted as part of the 2010 health care law.
The new levies, which take effect in January, include an increase in the payroll tax on wages and a tax on investment income, including interest, dividends and capital gains. The Obama administration proposed rules to enforce both last week.
Affluent people are much more likely than low-income people to have health insurance, and now they will, in effect, help pay for coverage for many lower-income families. Among the most affluent fifth of households, those affected will see tax increases averaging $6,000 next year, economists estimate.
East German markets in everything
Communist East Germany not only put its political prisoners to work making Ikea furniture, it also sold the bodies of its sick citizens to Western pharmaceutical firms for testing their new products, a new television documentary has revealed.
Here is more, hat tip to Kit in Germany.
Tripolitanian cuisine in Tel Aviv
Libya is an artificial country, so they don’t call it Libyan food, even though the restaurant is run by “Libyan” Jews.
Odelia, Ben Yehuda 89, Tel Aviv. The “Hrime” is pieces of snapper in an excellent red pepper sauce, very spicy and tasty. Eggplant Mafrom, with root vegetables, is recommended too. It’s also an excellent neighborhood for walking.
There are a number of Tripolitanian places in Tel Aviv.
Assorted links
Why are so few educated Asian women marrying?
Here is the job market paper from Jisoo Hwang, on the market this year from Harvard University. The title is “Housewife, “Gold Miss,” and Equal: The Evolution of Educated Women’s Role in Asia and the U.S. ” and here is the abstract:
Abstract: The fraction of U.S. college graduate women who ever marry has increased relative to less educated women since the mid-1970s. In contrast, college graduate women in developed Asian countries have had decreased rates of marriage, so much so that the term “Gold Misses” has been coined to describe them. This paper argues that the interaction of rapid economic growth in Asia combined with the intergenerational transmission of gender attitudes causes the “Gold Miss” phenomenon. Economic growth has increased the supply of college graduate women, but men’s preference for their wives’ household services has diminished less rapidly and is slowed by women’s role in their mothers’ generation. Using a dynamic model, I show that a large positive wage shock produces a greater mismatch between educated women and men in the marriage market than would gradual wage growth. I test the implications of the model using three data sets: the Japanese General Social Survey, the American Time Use Survey, and the U.S. Census and American Community Survey. Using the Japanese data, I find a positive relationship between a mother’s education (and employment) and her son’s gender attitudes. In the U.S., time spent on household chores among Asian women is inversely related to the female labor force participation rate in husband’s country of origin. Lastly, college graduate Korean and Japanese women in the U.S. have greater options in the marriage market. They are more likely to marry Americans than Korean and Japanese men do, and this gender gap is larger among the foreign born than the U.S. born.
Robots for parrots
African grey parrot, Pepper, perched atop his special robot, the “Bird Buggy”, designed by his human companion, Andrew Gray.
Proving that robots aren’t just for people any longer, African grey parrot, Pepper, has learned to drive a robot that was specially designed for him. Pepper, whose wings are clipped to preventing him from flying around his humans’ house and destroying their things, now manipulates the joystick on his riding robot to guide it to where ever he wishes to go.
This robotic “bird buggy” was the brainchild of his human companion, Andrew Gray, a 29-year-old electrical and computer engineering graduate student at the University of Florida. It was inspired by Pepper’s growing frustration with his human family’s rude behaviours.
Here is much more, with videos, and I like the subtitle of the article: “Now, for the first time ever, a parrot has successfully trained a human to design and build robots specifically for the parrot’s use and entertainment.”
For the pointer I thank Vic Sarjoo.
*The Measure of Civilization*
The author is Ian Morris and the subtitle is How Social Development Decides the Fate of Nations. I don’t like the subtitle of this book, which I feel should include the word “energy.” While a number of topics are covered, the core parts of the book concern the importance of energy sources for early economic development.
This strikes me as an important work. I will report back on it once I have the chance to give it further study (which won’t be right away). In the meantime I am simply reporting that it will come out this January and that it is worthy of your attention.
Assorted links
1. We should support rights for the Great Apes.
2. Good Greg Ip remarks on journalism and economics.
3. The cobra effect, and modern Florida and generalized.
4. Excerpts from an interview with me.
5. There is no great stagnation, soap bar edition.
Why did the Senate refuse to ratify the disabilities Convention?
Many people are criticizing the Senate for failing to ratify the UN Convention on the Rights of Persons With Disabilities, background here. The text of the Convention is here. In terms of enforceability, it is the usual “shall undertake to do” approach, with nothing in the way of actual teeth.
Erik Voeten seems upset that the United States did not ratify and seems to regard ratification as a no-brainer. Keep in mind that many of the good aspects of the Convention are already law in the United States and indeed often stem from American precedents.
If you would like one starting point for thinking about this issue, here is a simple exercise: imagine yourself a specialist in international law advising the U.S. government. Here is a Wikipedia summary of one part of the Convention:
In accordance with international law, to ensure that law protecting intellectual property rights do not constitute an unreasonable or discriminatory barrier to access by persons with disabilities to cultural materials.
What do you advise? Consider that the United States, when writing bilateral trade treaties, tries to enforce or even redefine IP law to the hilt. (NB: I don’t at all favor this, but it is a fact of life and will very likely remain so, for obvious public choice reasons.) You are the most powerful country on earth, so why should you ratify a Convention which will make this IP policy harder to see through and which will in fact create an entire series of loopholes, or at least rhetorical moves, many of which could end up involving weaker IP enforcement against the non-disabled? Imagine a nation, negotiating with the U.S., insisting that derivative works with subtitles for the hearing-impaired receive weaker IP protection, and citing the U.S. ratification of this Convention. (Personally, I probably would favor this by the way.) All of a sudden the U.S. would have to spend some political capital whacking this back down.
Very often UN Conventions are fights over the rhetoric which will be allowed and recognized in (binding) negotiations elsewhere. It is thus weaker nations which favor the increased ability to use such rhetoric, and stronger nations which wish to limit such rhetoric. Guess where that puts the United States?
I do not personally have any problem with the United States ratifying this Convention. But I recognize that a failure to ratify is simply “business as usual,” reflecting longstanding and rather deeply rooted priorities, rather than some strange Senatorial or Republican intransigence against the disabled.
More generally, the U.S. will be most interested in ratifying Conventions only if they bind other nations in a useful way to the United States. The WTO (although not legally a “Convention”) is a good example of that, but such examples are not that frequent.
This entire debate could use a closer look at the differences between being a states party to a Convention, signing, and ratifying.
I’ve read a bunch of articles on this Convention, from various media outlets, and not one of them is setting out the basic principles here with much accuracy.