The New Paradigm Papers of the Month of May

Place-Based Policies and Inequality Within Regions

Valentin Lang, Nils Redeker, Daniel Bischof

THE FULL PAPER.

With the growing impact of globalization, technological advancements, and the benefits of agglomeration economies in specific locations policymakers are allocating greater resources to address the escalating challenges of economic distress and political discontent in marginalized areas in the form of place-based policies. Current industrial policy advances, such as the US IRA, also contain clear place-based elements. Until now, the focus of research on place-based policies has primarily been on average effects. However, there is a dearth of evidence regarding the distribution of benefits within the regions receiving place-based funding. A new study by Valentin Lang, Nils Redeker and Daniel Bischof for the first time analyzes the distributional effects of placed-based policies. Utilizing household data obtained from 2.4 million survey participants within the European Union, they show significant presence of income inequality within European regions. This inequality has expanded since the 1990s and plays a more prominent role in overall inequality compared to inequality between different regions. In supported regions, the EU’s Cohesion Policy, the world’s largest place-based policy, had a limited impact on low-income households while providing income improvements for more affluent households. The researchers demonstrate that place-based funds exacerbate intra-regional inequality by primarily boosting labor incomes for the highly skilled.

Who said or what said? Estimating ideological bias in views among economists

Mohsen Javdani & Ha-Joon Chang

THE FULL PAPER.

The impact of ideology on economics has been a subject of ongoing debate. In today’s polarized political and social landscapes, ideology plays a dominant role, shaping divergent narratives regarding crucial issues that confront us. Key issues such as the climate crisis, rising inequality, corporate oligarchy, or the future of work are at the center of ideological battles that will determine our path forward. Simultaneously, there have been limited studies that offer comprehensive empirical evidence on the question how much of economic debate and hence policy making is tainted by ideology. A recent study by Mohsen Javdani & Ha-Joon Chang tries to address this gap. By conducting an online randomized controlled experiment involving 2,425 economists from 19 different countries, the researchers tried to examine the influence of ideological bias among economists. During the experiment, participants were presented with statements on various topics from prominent economists. The source attribution for each statement was randomized without the participants’ awareness. Each participant received either a mainstream source, an ideologically different less-/non-mainstream source, or no source for each statement. The researchers then assessed the participants’ reported agreement with the statements. The findings reveal that altering the source attribution from mainstream to less-/non-mainstream, or removing it altogether, significantly diminishes economists’ reported agreement with the statements. Notably, 82% of participants indicated that they believed one should solely focus on the content when evaluating a statement. However, as the study indicates, ideological bias and authority bias among economists seems to play a larger role than commonly perpetuated.

Immigration and Redistribution

Alberto Alesina, Armando Miano, Stefanie Stantcheva

THE FULL PAPER.

In recent European and U.S. elections, as well as in the debate surrounding Brexit, immigration has emerged as a significant issue of discussion. It has triggered heightened social and political conflicts in many countries as they grapple with the design of their immigration policies and their welfare systems. There is evidence that immigration is linked to the increasing support of right-wing political attitudes. Taken together, these circumstances give rise to two crucial inquiries: do citizens hold accurate perceptions regarding immigrants within their own countries? What is the connection between how citizens perceive immigrants and their level of support for redistribution policies? A recent research contribution by Alberto Alesina, Armando Miano and Stefanie Stantcheva attempts at answering these questions. In their paper, the researchers measure perceptions and attitudes towards immigration among non-immigrant respondents, with a specific examination of their connection to support for redistribution. The surveys were carried out in six countries: France, Germany, Italy, Sweden, the U.K., and the U.S. These countries were selected due to their varying welfare state models and divergent stances on redistribution, while simultaneously having immigration as a central topic in their political discussions.

Results from the study indicate significant misperceptions regarding the number and characteristics of immigrants among respondents. Across all countries studied, respondents consistently overestimate the total immigrant population, perceiving immigrants to be culturally and religiously more distant from themselves. Furthermore, they believe immigrants to be economically weaker, less educated, more unemployed, and more reliant on government transfers than they actually are. What is more, merely priming respondents to think about immigration before querying them about redistribution leads to reduced support for redistribution. Providing information regarding the accurate proportions and origins of immigrants does not alter support for redistribution.

Governing the work-related risks of AI: implications for the German government and trade unions

Anke Hassel, Didem Özkiziltan

THE FULL PAPER.

Artificial intelligence is developing at an ever-accelerating pace. A new study by Anke Hassel and Didem Özkiziltan examines the potential risks associated with artificial intelligence in the context of work. The researchers categorize the risks into direct and indirect risks. Direct risks encompass instances of discrimination, surveillance, and information imbalances brought about by AI in the workplace. Indirect risks, on the other hand, involve the increased automation of work and the growing fissurisation of jobs, i.e. the splitting or fragmentation of job tasks or roles through the use of technology. Hassel and Özkiziltan argue that policy solutions should be tailored to the specific type of risk involved. For direct risks, European and national regulations targeting discrimination, surveillance, and information imbalances can be implemented. Regarding indirect risks, the initial step involves monitoring and understanding sector-specific transformations to establish relevant expertise and competency. This approach to managing AI-induced risks in the workplace aims to enhance the prospects of promoting decent work, fair compensation, and adequate social protection for all individuals.

Labour market stability in a zero-growth economy

Valeria Jimenez

THE FULL PAPER.

To address unemployment, demand stimulation usually is a tool of choice. However, achieving the environmental targets outlined in the Paris Agreement may require a halt in economic growth or even a transition to degrowth. In this context, significant interventions in the labor market become necessary to prevent a rise in unemployment. A new paper by Valeria Jimenez models a Kaleckian based demand-led growth scenario to analyze the dynamic stability of the labor market in a zero-growth economy (ZGE) with productivity growth. The model considers short-term adjustments of net investment based on deviations from target capacity utilization, while in the long run, it aligns with firms’ sales growth expectations driven by the growth rate of autonomous government expenditures. As a result, in the long run, the growth rate of the system is determined by the autonomous growth rate of government expenditures (set at zero) and the convergence of capacity utilization towards the normal rate. The study investigates the conditions under which this long-run convergence leads to a stable employment rate. In the basic model, the paper incorporates feedback effects between productivity, distribution, and employment. However, it finds that the necessary long-run conditions for a stable employment rate are not met. This indicates the need for policy interventions to ensure labor market stability in a ZGE. Consequently, the paper explores whether the government can achieve labor market stability through a policy of working time reduction. The findings suggest that a stable employment rate can be attained in the model if the negative impact of labor productivity growth on the employment rate is offset by a reduction in working hours.