Twenty-third Annual EASE Conference

June 15-16, 2012
Takatoshi Ito, University of Tokyo, and Andrew K. Rose, University of California, Berkeley, Organizers

Margaret S. McMillan, Tufts University and NBER, and Dani Rodrik, Harvard University and NBER

Globalization, Structural Change, and Productivity Growth (NBER Working Paper No. 17143)

Large gaps in labor productivity between the traditional and modern parts of the economy are a fundamental reality of developing societies. McMillan and Rodrik document these gaps and emphasize that labor flows from low-productivity activities to high-productivity activities are a key driver of development. They show that since 1990, structural change has reduced growth in Africa and Latin America, with the most striking changes taking place in Latin America. The bulk of the difference between these countries' productivity performance and that of Asia is accounted for by differences in the pattern of structural change – with labor moving from low- to high-productivity sectors in Asia, but in the opposite direction in Latin America and Africa. They identify three factors that help to determine whether (and the extent to which) structural change contributes to overall productivity growth. In countries with a relatively large share of natural resources in exports, structural change typically has been growth reducing. Even though these "enclave" sectors usually operate at very high productivity, they cannot absorb the surplus labor from agriculture. By contrast, competitive or undervalued exchange rates and labor market flexibility have contributed to growth enhancing structural change.

Julen Esteban-Pretel, GRIPS; Ryo Nakajima, Yokohama National University; and Ryuichi Tanaka, Tokyo Institute of Technology

Changes in Japan's Labor Market Flows due to the Lost Decade

Esteban-Pretel, Nakajima, and Tanaka construct worker flows for the Japanese labor market in an internationally comparable manner and study the consequences of the deep and lasting recession of the 1990s. They analyze the changes in employment, unemployment, and inactivity, as well as the worker flows between these states, using detailed Labor Force Survey micro-data from 1983 to 2008. In order to understand what type of worker was most affected by the long recession, they disaggregate the data according to several worker and employer's characteristics. They find that the so-called Lost Decade of the 1990s changed the state of the Japanese labor market from all previous points of view, although some types of workers were more affected than others.

Stacey Chen, Academia Sinica

Long-Term Changes in the Wage Structure of Taiwan

Chen documents long-run changes in the wage structure of Taiwan using data from Manpower Surveys covering 1978-2010. She finds: 1) The average hourly wage of Taiwan has been growing steadily since 1978 but started stagnating around 1994 for men and 2002 for women. This leads to a secular convergence in the gender wage gap during the late 1990s. The gender convergence is particularly rapid for the upper tail of the distribution. 2) Contrary to the polarization of the United States and the United Kingdom, with the top quintile growing and the bottom quintile falling while the median stagnates, the Taiwanese version of polarization exhibits an upward trend for the bottom quintile, accompanying an early slowdown for both the median and the top quintiles. 3) The wage gap between high school and college-trained workers is narrowing. There is swift convergence in educational wage di fferentials between academic and vocational educations. 4) Education premiums show no upward trend at all educational levels, except for post-secondary education. Wage premiums for a post-graduate degrees were historically lower than for a university degree, but this trend began to reverse and has been widening rapidly since 2005.

Mei Hsu, National Taipei University, and Been-Lon Chen, Academia Sinica

Why Do Immigrants Earn So Much More Than Natives in Taiwan?

After World War II, many Chinese immigrants moved to Taiwan for political reasons. There, they and their immediate descendants performed better, posting average earnings about 30 percent higher than those of the native Taiwanese. Hsu and Chen study the factors underlying this earnings gap between immigrants and natives in Taiwan, with a focus on differences in the endowment of human capital and in occupations. They find first that the earnings disparity is rooted mostly in differences in endowments, with only a negligible fraction unexplained. Second, among differences in the endowment that account for the earnings differential, human capital variables play the most important role and occupational differences have only a minor role. Finally, an individual's secondary and higher education is most important in explaining the earnings gap, followed by father's education externalities, individual's occupation -- whether as a professional and/or paraprofessional, mother's ethnicity, and proficiency in Mandarin . An individual's middle school and primary education tend to moderate the earning gap.

Pengfei Wang and Lifang Xu, Hong Kong University of Science & Technology, and Jianjun Miao, Boston University

Stock Market Bubbles and Unemployment

Wang, Xu, and Miao introduce endogenous credit constraints into a search model of unemployment. These constraints generate multiple equilibria supported by self-fulfilling beliefs. A stock market bubble occurs through a positive feedback loop mechanism. The collapse of the bubble tightens credit constraints, causing firms to reduce investment and hiring. Unemployed workers have difficulty finding jobs, generating high and persistent unemployment.

Kaoru Hosono, Gakushuin University, and Miho Takizawa, Toyo University

Financial Frictions, Misallocation, and Plant-Size Distribution

Hosono and Takizawa quantify the effects of financial frictions on the loss of aggregate productivity and plant-size distribution through resource misallocation. They first measure the distortions (or wedges) on capital and output by applying the static monopolistic competition model to a rich plant-level data set of manufacturers in Japan. Next, they develop a dynamic model of monopolistic competition in which entrepreneurs are subject to productivity shocks and borrowing constraints, but can accumulate savings. Calibrating the dynamic model to match the plant-size distribution of manufacturers in Japan, they find that aggregate total factor productivity (TFP) would be higher by 11.3 percent if there were no borrowing constraint, which accounts for 48.1 percent of measured TFP losses caused by capital distortions. Their counterfactual experiments show that as a borrowing constraint is relaxed, output becomes more dispersed. This is consistent with the hypothetical plant-size distribution that would be realized without distortions on capital. However, relaxing borrowing constraints would decrease the share of very large plants (top 1 percent), which is inconsistent with the result of removing distortions on capital. These results suggest that financial constraints are a significant, but not the sole dominant factor for aggregate productivity loss and plant-size distribution.

Yupeng Lin, Takeshi Yamada, and Anand Srinivasan, National University of Singapore

The Bright Side of State Owned Bank Lending: Evidence from Japan

Lin, Srinivasan, and Yamada investigate the effect of lending by state-owned banks on real investment and employment for publicly traded industrial firms in Japan. They focus on a period that covers the Japanese financial crisis in the 1990s. They find that increases in lending by state-owned banks lead to higher levels of both real investment and employment growth in non-crisis periods. Further, increases in state-owned bank lending has strong incremental effects on investment during the crisis. Firms that are most credit constrained also benefit from increases in state-owned bank lending. In contrast, there is little evidence of incremental employment effects of state-owned bank lending during the crisis, or for more credit constrained firms. These results demonstrate that lending by state-owned banks can be consistent with the social view of such lending.

Catherine Wolfram, University of California at Berkeley and NBER; Paul J. Gertler and Orie Shelef, University of California at Berkeley; and Alan Fuchs, United Nations Development Programme

Poverty, Growth and the Demand for Energy

Most of the future growth in energy use is forecast to come from the developing world. Understanding the likely pace and specific location of this growth is essential to inform decisions about energy infrastructure investments and to improve greenhouse gas emissions forecasts. Wolfram, Gertler, Shelef, and Fuchs argue that countries with pro-poor economic growth will experience much larger increases in energy demand than countries where growth is more regressive. When poor households' incomes go up, their energy demand increases along the extensive margin as they buy energy-using assets for the first time. They also argue that the speed at which households come out of poverty affects their asset purchase decisions. They provide empirical support for these hypotheses by examining the causal impact of large increases in household income on asset accumulation and energy use in the context of Mexico's conditional cash transfer program. They find that transfers had a large effect on asset accumulation among the low-income program beneficiaries, and the effect is substantially greater when the cash is transferred over a shorter time period. They then apply the lessons from the household analysis to aggregate energy forecast models using country-level panel data. They show that if a country's growth has been pro-poor, the correlation between energy use and income is nearly double that of a country with GDP growth that has been less favorable to the poor. They explain how these results suggest that existing forecasts could grossly underestimate future energy use in the developing world.

Jakob B. Madsen, Monash University

Health, Human Capital Formation and Knowledge Production

Recent medical research shows that health is highly influential for learning and the ability to think laterally. However, past studies have failed to empirically examine the nexus between health, learning, schooling, ideas production, and growth. Madsen constructs a measure of health-adjusted educational attainment among the working age population that is based on their health status during the time they completed their education. Using data for 21 OECD countries over two centuries, he shows that health has been highly influential for both the quantity and quality of schooling and innovations, which in turn have been the main drivers of growth.

Meng-Chun Liu and Shin-Horng Chen, CIER

Contribution of Taiwan's R&D Investment to Employment

Liu and Chen examine the effect of innovation on employment across Taiwanese industrial manufacturing sectors. Using industry-level data from various sources, and a dynamic panel approach, they draw on datasets for Taiwan's industries during the years 2001-9. Their study empirically confirms the effects of innovation on employment generation. The industrial demand effect also plays a critical role in determining the changes in Taiwan's industrial structure. The results indicate that improvement in industrial productivity may be biased toward labor-saving technologies and weak in terms of creating employment opportunities.

Loukas Karabarbounis and Brent Neiman, University of Chicago and NBER

Declining Labor Shares and the Global Rise of Corporate Savings

Karabarbounis and Neiman document a 5 percentage point decline in the share of global corporate income paid to labor from the mid-1970s to the late 2000s. Increased dividend payments did not absorb all of the resulting increase in profits, and therefore the supply of corporate savings increased by over 20 percentage points as a share of total savings. These two trends occurred in most countries and were stronger in those experiencing greater declines in the relative price of investment goods. The authors develop a model that departs in two ways from the standard neoclassical model: CES production implies that the labor share can fluctuate; imperfections in the flow of funds between households and corporations imply that the sectoral composition of savings affects macroeconomic allocations. The authors calibrate the shape of the production function and the capital market imperfections to match the cross-sectional variation in the two trends. In response to the observed global decline in investment prices, the model generates more than half of the observed changes in labor shares and corporate savings. The non-unitary elasticity of substitution between capital and labor ,and the capital market imperfections, interact in a quantitatively important way to shape the dynamics in the economy.

Sanghoon Ahn, Korea Development Institute

Employment and Productivity Dynamics in Korea: An Analysis of Establishment-Level Micro Data

Xiaoyan Lei, CCER

The Retirement Patterns in China

Lei describes patterns of retirement in China using the national baseline in CHARLS, documenting the large differences between urban and rural residents and exploring possible explanations. Lei finds that the advantage in social security and family wealth of the urban elderly contributes greatly to the urban/rural difference in retirement. Also, the rural elderly's reliance on support from their children post-retirement is not adequate, implying the importance of extending the retirement age in the urban areas and enhancing the incentives embedded in the rural pension system.