For years and publicly, as recent as the last presidential election, there is rampant debate over the negative impacts of firms moving production plants overseas. Some called for less dependency on foreign countries, others for higher taxes to disincentivize American corporations. The discord stems from the view that the trade deficit decreases the demand for less-skilled workers, thus wages are falling and unemployment is rising. In his paper “Are Your Wages Set in Beijing?”  Richard Freeman explores the questions: Are the wages and employment of low-skill workers in developed countries determined by global, rather than domestic, supply of low-skilled labor? What factors decreased the demand for low-skill labor in advanced countries? To what extent is trade with less-developed countries reducing demand for low-skilled labor in developed countries?

The concern, as reflected by employment and wage data of low-skilled workers, is that increased trade between advanced countries and developing countries will result in a downward shift of the labor demand curve in advanced countries. In the long run, labor supply will shift upwards, which could have a positive impact on wage as there are fewer low-skill workers. Another concern related to changing labor markets is income inequality, which the author mentions. The relevant model is the Lorenz Curve, which can be used to reflect the changes in income distribution due to shifts in the demand (and supply) for higher-skilled workers. This will be reflected in an increased convexity of the Lorenz Curve, great income inequality. However, Freeman finds that “trade can account for 10-20 percent of the overall fall in demand for unskilled labor needed to explain rising wage differentials in the United States or rising joblessness in Europe” (25).

(Paper read in Economics of Social Issues)

For my senior paper, I researched the impact of incarceration on post-release employment. I focused on men convicted of low-skilled crimes, typically from low socioeconomic backgrounds. Near the end of my paper, I started to wonder if the negative effect of incarceration on employment opportunities is not due to the status of imprisonment but due to the diminishing low-skilled labor market. The loss of human capital, social capital, and positive association may have been pertinent prior to the progress in globalization, as explained above. Now, is the “incarceration effect” due to an evolving domestic economy or still due to association with criminal status?

Truly an interesting read on some very controversial topics regarding the collapse of the housing market by David Stockman (seen here: http://finance.fortune.cnn.com/2013/04/04/david-stockmans-dystopia/). How do you feel about his views that banks are “wards of the state”? Should banks be required to give out x% of their reserves to small businesses/businesses worth less than $10 mil (for example) to stimulate growth? After all, the banks are borrowing at virtually 0% but that is not the rate that the average American gets.

Here’s a few more perspectives on his book, and if you fast-forward to about 3:15 in this video (seen here: http://www.youtube.com/watch?v=utq4g-vkY4k), you see that our buddy Paul Krugman thinks of Stockman’s work. What do you think? Should we dismiss Stockman’s analysis because of the lack of a model?

http://www.nytimes.com/2010/04/11/magazine/11Economy-t.html?pagewanted=all&_r=0

This New York Times article by Paul Krugman asks the question “can we build a green economy?”, the answer is a resounding yes. As a society, we often look at environmentally friendly investment as economically inefficient. A gas tax or carbon tax has been labeled by casual onlookers as a dead weight loss to the economy. Many economist including Tyler Cowen of George Mason University and Jim Casey of Washington and Lee University, believe that the added social benefit of a carbon tax will minimize the deadweight loss of the tax. In this article, Krugman states that a shift towards renewable resources may hurt a few industries in the short run, but overall green research and development will create more jobs in the future.

The coal industry is an industry that could be wiped off the map with a shift in government subsidies. Facts show that the coal industry is already vastly inefficient and produces many health costs. The coal industry ”receives more in state tax dollars than they pay into the system.” In terms of jobs, technology has replaced the jobs of numerous coal miners, thus the amount of coal jobs is severely on the decline. I can already hear the argument about West Virginia and eastern Kentucky’s fragility and their need for the coal industry. I was born and raised in eastern Kentucky and I can personally attest that coal is killing that area of the country. Less than 1% of the region is employed by a coal company, and everyone pays the cost of their existence. The state subsidies are extreme, the air quality is poison, and the natural habitat/eco systems of many species have been murdered by the controversial “mountain top removal” process. One can see the impact that the coal industry has on Huntington, West Virginia, Beckley, West Virginia or Harlan, Kentucky with a simple drive through these downtrodden towns. The overlaying smog and economic disparity is evident even as you drive through the area. Krugman recognizes that these cost exist, and he hypothesizes that these externalities are only going to grow over time. The bottom line is, the long run cost of doing nothing may be greater than the cost of investing our resources in green initiatives today.

We’ve read papers by DeLong, Ramey and others — this is a timely article on Bloomberg for our upcoming debate on multipliers and stimulus.