Technological unemployment is not inevitable: How innovation creates new jobs

Technological ChangeThe relationship between technology and employment has long been a subject of debate. Technological change has contributed to the decline in manufacturing and to persistent unemployment in many advanced economies. This development is not inevitable, claims Marco Vivarelli from the Università Cattolica del Sacro Cuore in Milano. In his new article for the IZA World of Labor, he surveys the existing empirical evidence, showing that technological change can also induce job growth through innovation.

What are the roles of technology and innovation in explaining the long-term declining trend of manufacturing? Vivarelli distinguishes between job-destroying process innovation on the one hand and product innovation on the other, which can imply the emergence of new firms, new sectors, and thus new jobs. Policy makers should focus on maximizing the job-creation effect of product innovation, while minimizing the direct labor-saving impact of process innovation.

Read the full article:
Innovation and employment

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Consumption loans: Breaking the cycle of hunger in Zambia

Africa_HungerSmall-scale farming remains the primary source of income for the vast majority of the rural population in Zambia, with typically low levels of productivity and farming income. During the hungry season (January to March), farmers who can’t get access to credit typically increase their off-farm labor supply as casual day laborers. This drives down wages and may even hurt future harvests as laborers are forced to neglect their own fields.

glm_logo1A research project supported by DFID under the GLM-LIC program, coordinated by IZA, looks at a potential way out of this dilemma: Providing consumption loans can help farmers invest in their own fields and possibly boost their productivity. In their study, Günther Fink, Kelsey Jack and Felix Masiye examined whether farmers would opt for a loan with reasonable interest as an alternative way to access food. In randomly selected villages in the eastern part of Zambia, farmers were offered up to three bags of maize flour during the hungry season (enough to cover the consumption needs of an average household over a three-month period). They were asked to repay in maize after the harvest.

The outcome was extremely positive. First, farmers wanted the loans: 95 percent of those offered the loan took it up. Second, farmers were able and willing to repay: among those who took out a loan, over 95 percent repaid in full. But most important, there were positive effects on consumption, the labor supply, and wages. Specifically, when compared to a randomly assigned control group, the farmers with loans missed almost 50 percent fewer meals and were forced to look for casual day labor 25 percent less often. Most remarkably, local wages increased substantially.

Read the whole paper (IZA DP No. 8657):
Seasonal Credit Constraints and Agricultural Labor Supply: Evidence from Zambia

See also the Jobs and Development Blog:
Juggling Labor, Credit, and Crops in Zambia

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Should colleges share the burden of student loan debt?

University FeesTertiary education is a costly thing. How to design its financing is a major topic in public policy. Around the world, very different policies have been implemented – from tuition-free education in Germany, and interest-free loans reimbursed after graduation in Australia, to a more or less free-market solution in the U.S.

All-time high tuition fees in the U.S. and the accompanying peak in the national student loan debt of more than $1.3 trillion, with more than 80% backed by the federal government, have sparked a new discussion on how to design tertiary education financing. Default risk of students is high, exceeding that of credit cards, mortgages or auto loans. Current drastic examples like the collapse of for-profit tertiary education provider Corinthian Colleges show that the blame is partially attached to the institutions themselves. An emerging discussion addresses whether colleges should share their part of the burden of risk of students defaulting.

5536IZA Fellow Douglas A. Webber (Temple University) is an expert on tertiary education financing and testified in front of a U.S. Senate committee on May 20. We took the opportunity to talk to him about his opinion in the debate.

Should tertiary education institutions share their part of the default risk of student loan debt?

Webber: I am strongly in favor of this type of intervention. Student loan debt is a problem both on a macroeconomic ($1.3 trillion and growing, and has been compared to the housing bubble of the last decade) and individual level (growing debt negatively affects numerous important measures of well-being in addition to financial security). It is also important to recognize that there does not need to be fraudulent intent or poor teaching (although these are certainly issues at some institutions) for colleges to bear some fraction of the responsibility for their students’ labor market outcomes.

Risk-sharing means setting incentives to increase student completion rates. What can colleges do to keep student drop-out at low levels?

Webber: There are actually many mechanisms that schools would be incentivized to use, student completion rates are just one of the most obvious channels.  Time to degree completion is important because it impacts both the level of debt and the likelihood of graduation. Getting students through their tertiary education in a more efficient way would substantially reduce the number of eventual student defaults. Furthermore, many students aren’t aware of the enormous implications that their choice of major has on their future job-finding prospects. Schools and specific degree programs need to be more transparent with the labor market outcomes of their past students. I am certainly not saying that students should choose a school or major solely based on economic factors, but if graduates from an institution/major are unable to consistently find gainful employment, prospective students and parents need to be aware of this before taking on substantial debt.

How would students be affected by such a policy change?

Webber: This was the focus of a recent IZA Discussion Paper of mine.  I wanted to examine the extent to which institutions might respond to risk-sharing by passing the costs on to students in the form of higher tuition. Without getting into the technical details, I found that for the vast majority of institutions, the expected tuition increases would likely be modest (1-2%, even under fairly stringent risk-sharing penalties).  The only institutions which are projected to see considerably higher tuition increases (2.5-4.5%) are those with high tuition, high rates of borrowing, and high default rates – in other words, the institutions who are most contributing to the national student debt problem.


Read more about the economics of higher education in these recent IZA World of Labor articles:

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Innovative approach to reduce violence and crime in Liberia: New research supported by DFID and IZA

liberiaCities are home to more than half the population of developing countries. Many cities struggle to deal with large-scale urban violence, crime, and drugs, especially among poor young men. In post-conflict and fragile states, poor young men are also targets for mobilization into election intimidation, rioting, and rebellion.

In Liberia, which saw two civil wars between 1989 and 2003, development experts and policymakers are seeking evidence on the most effective ways to reduce crime and violence among high-risk young men. Two of the most common policy prescriptions—job creation and policing—aim to reduce crime and violence by either changing the incentives facing young men or punishing them.

An alternative approach seeks to rehabilitate high-risk men, using therapy and counseling to foster “character skills” such as self-control and a noncriminal self-image. It has been unclear, however, whether character and self-image are malleable in adults, especially “hard core” criminals or drug users.

Researchers from Columbia University, Harvard Medical School, and the U.S. Consumer Financial Protection Bureau partnered with Innovations for Poverty Action (IPA) to test and evaluate innovative approaches for reducing crime and violence in Liberia’s capital, Monrovia. They recruited the highest risk men—those engaged in regular crime, drugs, and violence.

glm_logo1The study was conducted within the GLM|LIC program funded by the UK Department for International Development (DFID) and coordinated by IZA.

The main program, the Sustainable Transformation of Youth in Liberia (STYL), was an 8-week program of cognitive behavior therapy developed by a local community organization. The therapy, led by reformed street youth and ex-combatants, aimed to foster self-control and a new self-image as a member of the community. The study also tested unconditional cash transfers to the high-risk men, with and without therapy.

The evaluation found that even these highest-risk young men largely invested and saved the unconditional cash transfer. Almost none was spent on drugs, alcohol, or other temptations. Yet the money only produced short-run improvements in investment and income.


The therapy program, however, while not affecting income, led to persistent falls in crime, drug use, and violence—especially in the group receiving cash in addition to therapy. Researchers concluded that self-control and self-image are malleable, and that cognitive behavior therapy can help reduce less organized, impulsive, and expressive forms of violence and crime.

Read more:
Washington Post blog post by Chris Blattman
IPA Policy Memo
Complete study

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What happens to student applications when university tuition fees go up?

By Filipa Sá (King’s College London and IZA)

University FeesThe coalition government’s increase of university tuition fees in England in 2012 has led to lively debates on how the cost of higher education affects university applications, particularly for students from disadvantaged backgrounds. Labour has brought this issue back to the centre of their election campaign, by pledging that if it is elected, tuition fees would be cut from a maximum of £9,000 a year to £6,000 a year.

By looking at the variation in university tuition fees in England and Scotland, my research has attempted to measure the effect of fees on applications and attendance.

The situation is very different on each side of the border because of two reforms. In 2001, the Scottish government removed upfront tuition fees, replacing fees of £1,000 a year with an endowment scheme that required students to pay a total of £2,000 after graduation. This endowment scheme was itself eliminated in 2007, meaning that Scottish students do not pay any fees to attend university in Scotland. In England, the coalition increased fees from a maximum of £3,375 a year to £9,000 in 2012.

Using data on applications from the Universities and Colleges Admissions Service for the period 1998-2013, I found that the removal of upfront fees in Scotland in 2001 increased applications by about 26%, while the increase in fees in England in 2012 reduced applications by about 19%. These results imply that a 1% increase in tuition fees leads to a fall in applications between 0.14% and 0.26%.

In England, applications dropped in 2012 and then picked up in 2013 and 2014. But the question is whether they would have increased by more in the absence of the reforms. If they had followed the same trend as in Scotland, then they should have increased by more in 2013.

To test whether this effect differs by institution and subject, I merged applications data separated by gender, institution and subject area, with information on average salaries and average employment rates of students six months after they graduated from their first degree.

Applications to institutions and subjects that lead to higher salaries and higher employment rates after graduation – such as medicine, dentistry and engineering – are much less affected by changes in fees. These results are consistent for the 2001 Scottish reform and the English reform in 2012 and suggest that students respond to higher fees by choosing courses that offer better employment prospects after graduation.

No drop off for disadvantaged students

To examine whether the increase in fees in 2012 had a disproportionate effect on students from less advantaged backgrounds, I looked at data from the Higher Education Statistics Agency (HESA) on the number of first-year undergraduates by ethnic group and by local authority for the period 2008-2013.

Although students from ethnic minorities are less likely to go to college, they were actually less affected by the increase in fees in 2012: the number of first-year black undergraduates fell by about 5%, between 2008 and 2013, compared with 28% for white students.

There is also no evidence that attendance has decreased more among students from local authorities with lower rates of participation in higher education. This suggests that fair access schemes and the provision of student loans are improving access for students from disadvantaged backgrounds.

Impact of any future cuts

The results of this study suggest that the Labour party’s proposal to reduce the cap on tuition fees in England from £9,000 to £6,000 could increase applications by between 5% and 9%. However, a reduction in fees would mean that a larger share of university funding would need to come from general taxation.

The Labour party has said the estimated £2.7 billion gap would be plugged by raising extra taxation by restricting pension tax relief on those with the highest incomes. Other parties have questioned how to ensure any money raised in taxation is passed onto universities.

If most of the benefit of a university degree is social – because society as a whole benefits from having well-qualified doctors, nurses and teachers – it makes sense to charge lower fees and fund universities out of general taxation. But if students are the ones who benefit the most from having a degree, it would make sense to charge higher fees, particularly for courses that lead to better paid jobs after graduation.


This article was originally published on The Conversation.
Read the original article.

The ConversationDisclosure statement: Filipa Sá receives funding from a British Academy small grant.

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Interview: Costs and benefits of emigration from West Africa

Held in Dakar, Senegal, this year’s Annual Migration Meeting (AM²) acquired a tragic topicality: The ongoing loss of lives in the Mediterranean Sea makes migration from Africa to Europe one of the most pressing policy challenges at the moment. Tomorrow German policymakers will come together at a refugee summit in Berlin. However, much of the European debate centers on how to deal with (and pay for) the inflow of refugees.

dansokhoTo provide an inside view from one of the major source countries of African emigration, we talked to Mamadou Dansokho (University Cheikh Anta Diop of Dakar and CRES), who is an expert on migration and economic development in West Africa:

How would you describe emigration from Senegal in terms of the costs and benefits for your country?

Dansokho: Senegal has a long history of emigration to Europe. The first wave of emigrants left the country after the Second World War, while the most important wave occurred in the 1970s, when many people from the North and South East of Senegal moved to Europe. These emigrants have been instrumental for their hometowns until today. Through remittances, they not only support families, but they help building and maintaining hospitals, and thus invest in the education and health of the people left behind.

But emigration also comes at a cost. Many emigrants have relatively low education levels. At the same time, they serve as role models for young people. Instead of aspiring to go to university, many young people think that education is not important because they can do better by moving abroad. Thus, many young people no longer believe in the benefits of higher education, and even of work. This is an enormous economic cost.

But there is also a social cost for the Senegalese abroad and the societies they live in. Children of the second immigrant generation find it increasingly difficult to integrate in the society. Take the example of France. Many young Africans only know poor areas in the Banlieue. There is a great emptiness in the young generation, a lack of identity, which makes them vulnerable to fundamentalism.

What can West African and European policymakers do to stop the refugee tragedy in the Mediterranean Sea?

Dansokho: It’s a drama. Africa and Europe certainly look back on a difficult common history. But one has to realize the cynicism of today’s world. European societies are very rich, and they know well the situation in most African countries. Without economic development, the only hope for young Africans is to move abroad. And while we live in a globalized world, it only goes so far. We have been asked to sign agreements which ensure free movement of goods and services, but which exclude the free movement of people.

At the same time, young people who want to pursue their higher education in Europe, especially in France, face difficulties. They are often brilliant minds, but the bureaucratic hurdles to enroll in a French university are enormous. Many young people are now more oriented toward the United States, and even China, because university access there is easier, and the universities are more integrative.

Also, even though civil rights are important in Europe, Europe has no harmonized rights for immigrants. African immigrants often feel marginalized, which can breed fundamentalism. Europe needs to improve the rights for immigrants. At the same time, if the goal is to control emigration from Africa, more funds will need to be provided for economic development in Africa.


Read also:

More information available in German.

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IZA Fellow Alan Barrett appointed to become ESRI Director

barrettThe Council of the Economic and Social Research Institute (ESRI, Dublin) has announced that Alan Barrett will succeed Frances Ruane later this year as the Director of the Institute. Alan Barrett is currently the Head of the Economic Analysis Division at the ESRI. He is also an Adjunct Professor at the Department of Economics, Trinity College Dublin, and is a member of the Irish Fiscal Advisory Council.

Alan is one of the very first IZA Research Fellows, having joined the IZA network right after the institute was established in 1998. He has contributed 30 IZA discussion papers to date, generating a total of over 90,000 downloads, and co-authored an IZA research report on the Active Inclusion of Migrants. He also serves as Editor of the IZA Journal of European Labor Studies.

“Alan Barrett combines academic excellence with a vision for concrete policy-making. He will become a strong Irish voice in the European policy debate,” said IZA Director Klaus F. Zimmermann.

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