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"EconWeekly" - 5 new articles

  1. Public education as an unemployment subsidy
  2. Notable pictures: Japan's female employment rate
  3. What business economists do (?)
  4. Escaping China's currency controls: A "gambling" trip to Macao
  5. What caught my eye
  6. More Recent Articles
  7. Search EconWeekly
  8. Prior Mailing Archive

Public education as an unemployment subsidy

From Bloomberg News: Eight years of college lets Finns hide from labor market.

“When I tell people I’m a student, it tells them I’m achieving something compared to being jobless,” he said, sipping green tea at a cafe near the university’s main building. “In reality, there might not be such a big difference.”

Finnish students stay in college longer than in any other developed country save Austria, the Netherlands and Denmark, getting their first university degree on average at 29, according to a 2013 report by the Organization for Economic Cooperation and Development. That compares with 24 years for Britons, 26 for Germans and the OECD average of 27 years. Most Finns who graduate from college get a master’s degree.

Easing the long years in college is the fact that students aren’t required to pay tuition. The state also provides grants of as much as 500 euros ($670) a month plus meal support and loans of as much as 400 euros a month.


While Finland’s two recessions since 2008 have pushed companies to cut jobs, unemployment has risen less than in many of its European peers. At the same time, so-called hidden unemployment is on the rise. The number of people not seeking work though they’d like to find it increased 10 percent in June from a year earlier.


Only about 50 percent of all university students graduate in five-and-a-half years or less, Helsinki-based Statistics Finland says. One-third of graduates are 30 years old or more, compared with an EU average of 17 percent, Eurostat says.

“School has traditionally acted as a buffer when the economic situation is bad,” said Ulla Haemaelaeinen, a senior researcher at the Finnish Social Insurance Institution in Helsinki. “It’s a policy choice.”


Notable pictures: Japan's female employment rate

I was surprised by this chart, a version of which I originally saw on FT Alphaville:

It shows the impressive rise of the female employment rate in Japan, both in absolute terms and relative to the U.S. The participation employment-population ratio is now higher in Japan than in the U.S., which is something I didn't expect.

The article is perhaps too quick to chalk up this rise to Abenomics. The timing is right, but I'm skeptical that the handful of policies introduced by Abe have overcome Japan's cultural biases and institutional barriers so quickly.

Among OECD countries in 2013, Japan's female employment rate (62.5) is near the median (60), and clearly above the average (57.5).

How about the gap between the male and female employment rates? The FT article highlights the "20 percentage-point difference" in Japan. Is that normal?

For the OECD as a whole, the male-female gap is 15.7 percentage points; in Japan it's 18.3. The largest gender gaps in the employment ratio are for Turkey (39.8), Chile (22.8), Korea (21), Italy (18.6), and Greece (18.4). Next was Japan. The smallest gaps are in the Nordic countries, followed by Portugal (!), and Canada.

I was also surprised to learn about the low correlation between the male participation employment rate and the gender gap in participation employment rates.

So, the female participation employment rate in Japan is now in line with that of other rich countries, but the gap between men and women is still quite higher.

Edited on 8/14/14, at 4:15pm CT, to replace "participation rate" with "employment-population ratio" (or simply, "employment rate"). They're not the same thing. Sorry about that.

What business economists do (?)

Tyler Cowen linked to an article by Lydia DePillis on the Washington Post, a few days ago, about the "new business economist", the articulate professional with a nice suit, a telegenic face, and a masters or a Ph.D. degree, who can explain anything and everything to an audience of non-experts. My favorite passages:

It’s already been quite a couple months. Flying back and forth between Redfin’s Seattle headquarters and its D.C. office, Richardson takes calls from local reporters trying to place their city’s housing markets in context. She talks to Redfin agents all over the country, and helps promote new data products, like one that calculates how likely a home is to sell within a certain period of time.


The market for consumer-facing economists is certainly getting crowded. Big Internet companies have had chief economists for years now; Google’s Hal Varian is an oft-quoted exponent of his employer’s capabilities and worldview. Microsoft recently hired Yahoo’s former chief economist to push a more “data-driven culture” at the tech dinosaur.

But they’re not just looking for super-wonks. More importantly for Richardson, rival real estate sites Zillow, Trulia, and CoreLogic have offered their chief economists as media-friendly talking heads, always available to explain national trends: Stan Humphries, Jed Kolko, and Mark Fleming have essentially become their companies’ most visible employees, speaking at conferences and testifying on Capitol Hill.

That’s why’s recent listing for a chief economist includes the following in its job description: “Act as the face of the company with key journalists for both print and tv interviews with leading publications,” “work closely with our PR and branding teams,” and have “excellent stage presence.”

In a data-chic world, a chief economist is the new marketing must-have.
Now Neil Irwin at the NYT (hat tip to John Cochrane) compares business economists with academic economists:
There are the academic economists who study the forces shaping the modern economy. Their work is rigorous but often obscure. Some of them end up in important policy jobs (See: Bernanke, B.) or write books for a mass audience (Piketty, T.), but many labor in the halls of academia for decades writing carefully vetted articles for academic journals that are rigorous as can be but are read by, to a first approximation, no one.  
Then there are the economists in what can broadly be called the business forecasting community. They wear nicer suits than the academics, and are better at offering a glib, confident analysis of the latest jobs numbers delivered on CNBC or in front of a room full of executives who are their clients. They work for ratings firms like S.&P., forecasting firms like Macroeconomic Advisers and the economics research departments of all the big banks. 
The key difference, though, is that rather than trying to produce cutting-edge theory, they are trying to do the practical work of explaining to clients — companies trying to forecast future demand, investors trying to allocate assets — how the economy is likely to evolve. They’re not really driven by ideology, or by models that are rigorous enough in their theoretical underpinnings to pass academic peer review. Rather, their success or failure hinges on whether they’re successful at giving those clients an accurate picture of where the economy is heading.

And how exactly can we judge whether those economists are giving clients an "accurate picture" if their models are not rigorous (or tested, or even internally coherent)?

Is this what "business economists" are? Articulate, attractive faces who can explain things to non-economist ears? And what does "explain" mean in my previous sentence? Re-tell popular stories, or the ones that conform to the audience's views, with minimum jargon and maximum entertainment? How is the success of a business economist measured? How is his value-added measured?

Escaping China's currency controls: A "gambling" trip to Macao

Mainlanders looking to skirt the Chinese government's strict currency controls for a little high-stakes gambling need not look far after reaching the city of Macao.
[...] mainland authorities in recent months have been taking a closer look at the ways that gamblers dodge the official, 20,000 yuan limit on the amount of cash that a mainlander is allowed to take abroad (including Macao and Hong Kong).
One way around the currency rules begins with the purchase of an expensive watch or jewelry at a Macao pawn shop using a UnionPay debit card tied to a mainland bank account. UnionPay, China's state-run credit card company, bars the use of its cards in casinos but lets each card holder spend up to 1 million yuan every day at shops of point-of-sale machines, including pawn shops.
In the summer, Macao's streets are packed with mainlanders bustling from one casino to another. They also frequent the city's myriad pawn shops, which are overflowing with watches and jewelry. Gamblers use these pawn shops to obtain cash, so they don't flinch at steep price tags. After a purchase, a gambler-shopper quickly re-sells that expensive watch or piece of jewelry to the pawn shop for the same amount, less commission, and pockets the cash for later use in a nearby casino.
If it's so easy to skirt currency controls, why hasn't Beijing plugged this hole? My theory is that China allows the "Macao way-around" (as well as the "Hong Kong roundabout") as a sort of "safety valve"--the way pressure cookers have a hole built in, through which steam continuously seeps out. If China were really serious about currency controls, this low-tech evasion wouldn't happen.

Consider this: Now Beijing is getting upset that the money laundering/currency control evasion is getting out of hand. What do they do?
Under orders from Macao's secretary for economy and finance, Francis Tam Pak Yuen, a moratorium on new point-of-sale UnionPay machines in casino-attached jewelry shops took effect in July. The city's Office of Financial Information, meanwhile, and its Director Deborah Ng Man Seong are busy watching local casinos for signs of money laundering.
Yuen's moratorium order is expected to cap but not eliminate this pawn shop practice. It does not, for example, stop the use of existing UnionPay point-of-sale machines nor prevent casino operators from moving machines from one venue to another.
Doesn't sound particularly heavy-handed.

Macao provides other ways for "high rollers" from the mainland to evade capital controls. Read the whole piece, at CaixinOnline.

P.S. If you're interested in the topic of illicit financial flows in and out of China, check out the Global Financial Integrity website.

What caught my eye

1. How the government exaggerates the cost of education, by David Leonhardt at the New York Times.
But it turns out the government’s measure is deeply misleading.
For years, that measure was based on the list prices that colleges published in their brochures, rather than the actual amount students and their families paid. The government ignored financial-aid grants. Effectively, the measure tracked the price of college for rich families, many of whom were not eligible for scholarships, but exaggerated the price – and price increases – for everyone from the upper middle class to the poor.
Fortunately, the government isn’t the only organization that collects data on college tuition over time. The College Board also does, and it publishes different indexes on published tuition and net-price tuition, separately for public and private colleges. (Only scholarship grants are considered in the net-price calculation. Loans, appropriately, are treated as part of the tuition that families are really paying.)
Net tuition and fees at private four-year colleges have risen 22 percent since 1992, the College Board says, and the increase has been 60 percent at public four-year colleges. Community-college tuition has declined, because aid grants have outpaced published tuition. These numbers are obviously quite different from the government’s index showing a 107 percent increase.
The more challenging question is: Given the changes that we're about to see in how higher education is provided (online classes), how much will college cost in 20 years? (Hat tip to my wife, to whom I can't give a confident answer when she asks: "How much do we need to save for our [8-month-old] son's college?")

2. A measure of global systemic financial risk, from NYU Stern's V-lab, via Econbrowser, and a chart for China:

3. The U.S. can't inflate away its public debt, probably. From a recent paper by Jens Hilscher, Alon Raviv, and Ricardo Reis: Inflating away the public debt? An empirical assessment. [Ungated version.]
Abstract: We propose and implement a method that provides quantitative estimates of the extent to which higher- than-expected inflation can lower the real value of outstanding government debt. Looking forward, we derive a formula for the debt burden that relies on detailed information about debt maturity and claimholders, and that uses option prices to construct risk-adjusted probability distributions for inflation at different horizons. The estimates suggest that it is unlikely that inflation will lower the US fiscal burden significantly, and that the effect of higher inflation is modest for plausible counterfactuals. If instead inflation is combined with financial repression that ex post extends the maturity of the debt, then the reduction in value can be significant.
4. Valuing non-US equities: claims about the CAPE (cyclically-adjusted price-earnings) ratio, by Andrew Smithers. Part I. Part II.

5. The dark side of the Italian tomato. Also in French and Spanish.
Italy, the third largest agricultural producer after France and Germany, vies with Spain for first place in the production of vegetables. In the past 10 years, Italy has produced an average of 6 million tonnes of tomatoes per year (FAOSTAT). According to FAO, the exportation of concentrated Italian tomatoes was facilitated in 2001 by a reimbursement by the EU of 45 euros ($61) for every tonne of product exported (FAO). But that’s not all. Overall, according to Oxfam, the EU subsidises tomato production to the tune of approximately 34.5 euros ($47) per tonne, a subsidy that covers 65% of the market price of the final product (Oxfam). But who in Brussels is aware of the paradox of subsidising an export product that dumps on local produce in Africa? 
The European Union subsidizes local production of farm products, which puts Africans out of work in their home countries, which drives them to migrate to Europe, lowering wages in Europe. In the end, the tomato pickers might enjoy the same expected utility in Africa than in Europe, after cost and quality of living are accounted for. European producers win, African producers go out of business.

One might argue the subsidies are a net positive if tomato production is more efficient in Europe than in Africa. But if that were the case, then why would European production need to be subsidized? Leaving aside that, what's the effect of European subsidies? European farmers win, the impact on everybody else is uncertain, at best.

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