Studies in this week’s Hutchins Roundup find that gig economy jobs are not replacing traditional jobs, credit card regulations reduced competition, and more.
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Conventional wisdom suggests that the “gig economy” has grown significantly, but proving this has been difficult. Using data from individual tax returns, Brett Collins of the Internal Revenue Service and coauthors estimate that the number or workers participating in gig work rose from virtually zero in 2012 to 1.9 million in 2016—representing about 1 percent of the U.S. workforce. However, they show these new forms of work mostly supplement income for workers with other primary jobs. Workers are no more likely to earn a full-time living from gig work now than they were in 2005. While the analysis suggests that gig work is not replacing traditional jobs, it does indicate that workers in traditional jobs are now more likely to have additional work on the side—raising the possibilities that workers have stronger preferences for flexible jobs or that traditional jobs offer less stable income than in the past.
The Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009 limited companies’ abilities to raise interest rates on outstanding balances on consumer credit cards, potentially reducing the incentive for companies to compete by lowering rates. Geng Li of the Federal Reserve Board and Yiwei Dou and Joshua Ronen of New York University find that, following passage of the CARD Act, competition declined significantly in the market for consumer credit cards relative to the market for small business credit cards, which were not subject to the Act. They show that prior to the CARD Act, credit card companies lowered interest rates on their cards by about ½ percentage point for every 1 percentage point that a competitor lowered rates; after the Act, that response fell to about 1/8 percentage point. The authors find that overall, the CARD Act led to higher and more varied interest rates on consumer credit cards relative to cards that were exempt from the law. The findings suggest that regulations aimed at consumer protection can have unintended effects on market competition.
Robert Gordon and Hassan Sayed of Northwestern University find that long-term declines in productivity growth in Europe and United States look very similar in terms of size, industries affected, and sources of the decline. The common cause, they say, is a decline in the pace of innovation. The authors show that the industry composition and drivers of the productivity slowdown have shifted in the last decade in both places. While the slowdown was concentrated in goods rather than service industries until 2005, since that time it has been observed across both sets of industries. And where lack of innovation used to be the dominant driver of low productivity growth in the U.S. and Europe, they show that since 2005 low investment has played an equally important role. This indicates that common factors across industries and countries are now reducing global productivity gains.
Chart of the week: The Treasury term premium has fallen since the Fed started its balance sheet unwind
“Trade growth has generally fallen short of expectations since the global financial crisis a decade ago. […] For various reasons we have seen some global value chains become more simplified and a reversal of some of the fragmentation of manufactured products we saw 20 or 30 years ago. As a result, components are crossing fewer borders in the assembly process. Trade intensity has eased, and we see a slowing of trade growth around the world,” says Stephen Poloz, governor of the Bank of Canada.
“But, as we just saw, economies are constantly evolving. Growth in Canada’s economy, which was based on trade in natural resources in its early years, is now driven mainly by service industries. Roughly 80 per cent of Canadians are now employed in services, and trade in services has been growing at a much faster pace than goods. Today, we sell about $120 billion per year in services to the world. […] services trade is difficult to track and probably underestimated. For example, many manufactured products include a large services component that is buried in the price. By some estimates, as much as 30 per cent of the value of goods exports is actually created through services. […] many countries have seen a slowdown in trade and investment, mainly in response to trade uncertainty. At the same time, many countries are seeing strength in their labour markets. It is worth considering whether the shift in economic growth toward technology and services is playing a role.”