The New Paradigm Papers of the Month of July
Once a month the Forum New Economy is showcasing a handful of selected research papers that lead the way towards a new economic paradigm.
PUBLISHED3. JULY 2023
READING TIME4 MIN
Safe and Just Earth System Boundaries
Johan Rockström, Joyeeta Gupta, Dahe Qin et al.
The interconnectedness of the Earth’s stability, resilience, and human well-being is often overlooked, resulting in their separate treatment. To address this gap, researchers around leading environmental scientist Johan Rockström have conducted new modelling and literature assessments to quantify Earth system boundaries (ESBs) that ensure both safety and justice at global and national scales. The authors propose a set of ESBs that maintain the stability and resilience of the Earth system (safe ESBs) while minimizing significant harm to human populations (a necessary but insufficient condition for justice). The findings reveal that justice concerns impose greater limitations on the integrated ESBs than safety concerns, particularly for climate and atmospheric aerosol loading. Alarmingly, seven out of eight globally quantified safe and just ESBs, as well as at least two regional ESBs, have already been surpassed in over half of the global land area. The study provides a novel quantitative basis for safeguarding the global commons for present and future generations.
Uncovering the Dynamics of the Wealth Distribution
In many countries around the world, wealth inequality has been on the rise. However, the exact drivers of wealth inequality and their relative weights are not always clear. Using a novel stochastic model, economist Thomas Blanchet developed a method that effectively separates different effects on wealth development, including mobility, savings, labor income, rates of return, demography and inheritance. Blanchet applies this approach to estimate the wealth distribution in the United States since 1962, using historical data on income, wealth, and demography. The findings reveal that the primary drivers behind the rise of the top 1% wealth share since the 1980s are, in decreasing order of importance, higher savings at the top, greater rates of return on wealth (primarily through capital gains), and increased inequality in labor income. Additionally, the model is utilized to examine the impacts of wealth taxation. In the benchmark calibration, the optimal wealth tax rate at the top, maximizing revenue, is relatively high (around 12%), but the actual revenue collected from the tax is considerably lower than in a static scenario.
Make Immigration Smart, Simple and Fair: A Proposal With a Double Dividend
Manuela Barisic, Simon Jäger, Alan Manning et al.
The German labour market is facing major challenges in view of demographic change and the resulting predicted shortage of skilled workers and labour. There is therefore a growing cross-party consensus that, in addition to increasing domestic labour force participation, increased immigration, especially from third countries, is necessary. In a recent paper, Manuela Barisic et al. argue for a significant relaxation of immigration regulations in Germany. They suggest linking the granting of a temporary work permit for third-country nationals to an existing training or job offer in companies bound by collective agreements. This way, immigration potential and opportunities for economic growth and prosperity could be better exploited. In addition, strengthening collective bargaining coverage promotes a balanced social environment – an objective that enjoys broad political support across party lines. The proposal thus addresses two key labour market challenges at the same time: facilitating the much-needed immigration of workers from third countries and strengthening collective bargaining coverage, which has been declining for years.
Cars, Capitalism and Ecological Crises: Understanding Systemic Barriers to a Sustainability Transition in the German Car Industry
Katharina Keil & Julia K. Steinberger
In light of the climate and ecological crises, it is crucial to reduce car usage and simultaneously transition to alternative power sources, while also decreasing the size, weight, and energy requirements of vehicles. This poses a significant challenge to the global automobile industry, as its traditional business model revolves around selling more and larger cars. Against this context, Katharina Keil and Julia Steinberger examine the social-ecological limitations of industrial restructuring in Germany. By conducting a narrative literature review from a Marxian political economy perspective, they assess the interconnected barriers within the system that hinder the attainment of social and ecological sustainability at the sector level. They find that the electrification of powertrains is influenced by technological progress, which intensifies the exploitation of metals and rare earths, leading to notable social and ecological drawbacks. This creates a dilemma for the industry’s transition strategies.
Energy, Inflation and Market Power: Excess Pass-Through in France
Axelle Arquié, Malte Thie
The Russian war against Ukraine has led to significant and broad price hikes. Since then a heated debate has ensued on whether inflation has additionally been accelerated by an excess pass-through of costs by firms, i.e. whether inflation has been profit-driven. In a new working paper, Axelle Arquié and Malte Thie study the relationship between market power and producer prices in the French manufacturing sector during a period of significant energy price hikes from January 2020 to February 2023. They find empirical evidence for the role of firms’ market power in explaining inflation and for the “sellers’ inflation” hypothesis proposed by Weber and Wasner earlier in 2023. The researchers suggest that in less competitive sectors, firms may exploit the energy price hikes to increase prices beyond the actual cost changes. In the least competitive sector, firms pass through up to 110% of the energy shock, implying an excess pass-through of 10 percentage points. Additionally, the association between markup and pass-through is stronger when there is low markup dispersion, suggesting that firms raise prices in anticipation of their competitors doing the same.