Edward Conard

Top Ten New York Times Bestselling Author

  • “Unintended Consequences is full of substance, it is one of the must-read books of the year, and once I finish it I will be giving it a second read through right away.” - Tyler Cowen, Professor, George Mason University
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “Unintended Consequences provides a provocative interpretation of the causes of the global financial crisis and the policies needed to return to rapid growth. Whether you agree or not, this analysis is well worth reading.” - Nouriel Roubini, New York University; Chairman, Roubini Global Economics
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Thursday, August 27, 2020

AI Summary. Across 117 French cities, the authors find labor market polarization in 115 of them: large cities lost middle-wage jobs that were replaced roughly two-to-one by high-paid positions, while smaller cities replaced lost middle-wage jobs mainly with low-paid work, producing a divergence between large and small cities.

Donald Davis National Bureau of Economic Research
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Large cities in France btw 1994-2015 lost middle wage jobs, but they were replaced two-to-one with high paid jobs, a reverse pattern in smaller cities @DonaldDavis @nberpub.

Does labor market polarization push large and small cities apart?

Core argument: In France's large cities between 1994 and 2015, middle-wage jobs declined sharply and were replaced two-to-one by high-paid positions, while low-paid jobs grew modestly.

Between 1994 and 2015, large cities in France experienced significant labor market polarization, characterized by a sharp decline in middle-wage jobs, which were replaced two-to-one with high-paid positions. This shift resulted in a dramatic change in the employment landscape of large cities, where high-skill jobs expanded greatly, while low-paid jobs saw modest growth. Conversely, smaller cities faced a different pattern, with a more moderated loss of middle-wage jobs primarily replaced by low-paid positions, leading to a divergence between large and small cities. The data from 117 French cities confirm that labor market polarization is nearly ubiquitous, with 115 cities exhibiting this trend. The study highlights the importance of understanding the heterogeneity within middle-wage jobs and the implications for economic policy, as large cities continue to attract high-skill employment while smaller cities struggle with job quality and wage disparities.

Takeaways by Macro Roundup® AI

  1. In France's large cities between 1994 and 2015, middle-wage jobs declined sharply and were replaced two-to-one by high-paid positions, while low-paid jobs grew modestly.
  2. Smaller French cities lost middle-wage jobs more moderately and replaced them primarily with low-paid positions, producing a divergence in job quality and wages between large and small cities.
  3. Across 117 French cities, 115 exhibited labor market polarization, and the study emphasizes heterogeneity within middle-wage jobs and its implications for economic policy.

Evidence from France documenting labor market polarization btw large and small cities; study finds a tight link btw large cities becoming even more skilled relative to lower skilled smaller cities, which have become less skilled. They don’t address housing costs.

“….We examine….labor market polarization and the great divergence using detailed data over the period 1994-2015 for a sample of 117 French cities. The data employed includes inter alia population, skills, employment by occupation, and measures of routinizability and offshorability of jobs. The data validate baseline predictions from the theory, including a log-supermodular distribution of skills and differential patterns of employment, whereby at baseline larger cities have less employment in middle-paid jobs and relatively more employment in high paid jobs. Consistent with prior work,we find labor market polarization in the aggregate for France in the study period. We go beyond this to show that labor market polarization is very close to ubiquitous at the local level, with 115 of 117 cities sharing this feature. In spite of this, we also show that these patterns differ importantly in cities of different sizes. Large cities have a sharper loss of middle-paid jobs. Yet in the large cities these jobs are replaced two-to-one with high paid jobs, and the reverse pattern in small cities.All of these observations are consistent with our theoretical framework. In the prior work on labor market polarization, the primary spatial concept of concern was exposure. The literature showed that the regions most exposed to middle-paid routinizable and offshorable jobs at baseline were also the regions that had the sharpest decline in these jobs in the periods of study. While very insightful, these studies also have limitations. First, these are only a subset of the lost middle-paid jobs, and so the empirics are unclear to what extent this exposure is also indicative of the loss of other middle-paid jobs or of the entire class of middle-paid jobs. This would require thinking about dimensions of heterogeneity within the class of middle-paid jobs that the prior frameworks are not designed to address, but which is central to what we do. Our data confirms the prior result that cities with a large initial exposure to the most routinizable and offshorable jobs indeed have the sharpest contraction of these jobs in the study period. Importantly, though, we find that the loss of other middle-paid jobs and indeed of middle-paid jobs taken as a whole have the reverse pattern that might be expected from this. It is the large cities that have the greatest loss of the middle-paid jobs, even though the initial exposure to these jobs is smaller in large cities. Moreover, consistent with our framework, the primary difference between large and small cities occurs in the upper tail of middle-paid jobs, which decline sharply in large cities even as high skill jobs there expand greatly. In sum, we find that the period of study identifies two Frances. In the France of large cities, there is a dramatic change, as there is a sharp contraction of middle-paid jobs, particularly at the top end of these. However in the France of large cities, these middle-paid jobs are largely replaced by high-paid jobs, with a more modest expansion of low-paid jobs. Still there is very sharp polarization within these cities. In the France of small cities, there is a strong, yet more moderated, loss of middle-paid jobs. Some high paid jobs are gained, but the lost middle-paid jobs are primarily replaced by low paid jobs. Polarization of jobs in the aggregate and within cities is accompanied by a great divergence between the Frances of large and small cities. …”
Labor Market Polarization and the Great Divergence: Theory and Evidence: Extended Excerpt Image 1

Labor Market Polarization and the Great Divergence: Theory and Evidence: Extended Excerpt Image 2


Donald Davis, Eric Mengus and Tomasz Michalski, "Labor Market Polarization and the Great Divergence: Theory and Evidence," National Bureau Of Economic Research, April 2020, https://www.nber.org/papers/w26955

Friday, August 28, 2020

AI Summary. Germany risks becoming an "extended workbench" focused on assembly rather than innovation because it lags in software and lacks major technology companies, leaving German firms to seek partnerships in the US or China. Software companies increasingly act as intermediaries between producers and customers, a shift German firms have largely missed.

Guy Chazan Financial Times
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Germany risks becoming an “extended workbench” due to its lag in software & tech innovation, forcing firms to seek partnerships abroad, notably in the US or China.

Is Germany's lag in software reducing it to an assembly economy?

Core argument: Germany risks becoming an "extended workbench" focused on assembly rather than innovation because it lags in software and technology.

Germany's economic landscape faces a critical challenge as it risks becoming an "extended workbench" due to its lag in software and tech innovation. Chancellor Merkel highlights the shift where software companies are becoming key intermediaries in producer-customer relationships, a development German firms have largely missed. This gap threatens Germany's competitive edge, as merely selling products is insufficient without leveraging data to innovate. The absence of major tech companies in Germany exacerbates this issue, forcing firms to seek partnerships abroad, notably in the US or China. The lack of a robust software industry underscores Germany's vulnerability in the global tech race, potentially relegating it to a role focused on assembly rather than innovation.

Takeaways by Macro Roundup® AI

  1. Germany risks becoming an "extended workbench" focused on assembly rather than innovation because it lags in software and technology.
  2. Chancellor Merkel argues that software companies are becoming the key intermediaries between producers and customers, a shift German firms have largely missed.
  3. The absence of major tech companies in Germany pushes German firms to seek partnerships abroad, notably in the US or China, as selling products alone is insufficient without using data to innovate.

Merkel:”… It is a concern shared by Angela Merkel, Germany’s chancellor. In an interview with the FT this month, she said that software companies were inserting themselves into producer-customer relationships, becoming essential “intermediaries” between businesses and their clients. German companies, she warned, had missed out on this development and were now at risk of falling behind. “It’s no longer enough to merely sell a product,” she said. “One also needs to develop new products from the data on these products.” Her fear: that without this expertise, Germany could end up becoming nothing more than an “extended workbench”, a kind of glorified assembly line….”

“We have, I would say, disadvantages here,” Mr Diess tells the FT. “We don’t have the big tech companies here... and you need tech companies to partner with. So either we can go to the west coast or we can go to China. We don’t have the software skill and size. We don’t have a software industry.”

Patrick McGee and Guy Chazan, "The Apple effect: Germany fears being left behind by Big Tech,"Financial Times, January 29, 2020, https://www.ft.com/content/6f69433a-40f0-11ea-a047-eae9bd51ceba