Polluted cities and fantasy football

Top of the Charts

Afternoon all,

Perkiness is in the air. The sun is out, the parents are vaccinated and the world appears to be getting serious about the whole save the world/avert catastrophic climate change thing. The main win from Biden’s Leaders Summit isn’t the new US commitment (reducing emissions by 50 per cent vs 2005 levels by 2030), but the crystallisation of a changed political/economic context for climate change action: most countries now see action as in their own interests.

Obviously, we mustn’t overdo the optimism. Announcing targets is a lot easier than reaching them (the UK debate badly needs to move to delivery not targets). And while the 180° turn in US climate policy is transformative, it’s also a reminder of how fragile progress is (history says Republicans will win an election at some point).

But we should enjoy the progress with some climate focused reads. And Joe Biden is clearly right that this is a “decisive decade” for resetting out economies. This is even more true for the UK. We’ve got the shared tasks of driving the net zero transition and emerging well from Covid-19. But Brexit means the UK has a uniquely urgent job to rethink its path to economic success. That’s why we and LSE are shortly launching the Economy 2030 Inquiry to focus on exactly this. Lots more details to come in mid-May.

Chief Executive
Resolution Foundation

Fleeing pollution. The net zero transition won’t just save the planet – it should make lots of it more pleasant to live in given that polluted cities are grim. New research using Chinese data offers an interesting new angle – focusing on the economic damage done when high pollution changes people’s decisions about where to live. The basic argument is that people move away from highly polluted cities (largely in east China). That’s good for the quality of the air they breath but harms the economy as a whole because those cities are the highly productive ones. It’s highly-educated workers who move, while lower-skilled workers stay put. The authors make some fairly bold claims about the size of this effect, arguing that if pollution in Beijing was halved, GDP per worker would rise 11 per cent and the wages of unskilled workers surge by 15 per cent. The lesson? Cutting pollution pays.

Change costs. Amid all the climate optimism, it’s important not to lose track of why change is hard. A new ECB paper provides a suitable reminder, examining the impact on jobs of increases in energy costs. Looking at firm-level data they show that higher electricity prices (which carbon taxation leads to) have led to less demand for workers in the most electricity-intensive sectors (a 20 per cent price rise reduced employment by 2 per cent to 4 per cent in the most impacted industries). Now, this is still totally consistent with wider research showing that the net zero transition will create jobs (not least because the absolute number of jobs at risk here isn’t huge), but it is an important reminder that underneath those positive aggregates sits lots of change – change which will be felt very unequally across people and places.
Fantasy football. The comically incompetent attempt by football’s newly named “dirty dozen” to redesign pan-European competition has provided some light relief this week. People are going to be using it as a PR disaster case study for years. But never wanting to miss out on the action, economics thinkers have been examining what this saga says about our wider society/economy. You’ll enjoy Chris Dillow’s short blog, which argues that the Super League was a symptom of capitalism’s distaste for competition (i.e. the elite clubs weren’t just after cash today, but were trying to rig the new structure to guarantee cash tomorrow because they couldn’t get relegated). As he notes, there are good ways firms try to build market power (i.e. having really good products) and bad ways (rigging the rules of the game in their favour). This is the latter. (Chris also basically predicted that power exercised by managers/players would do more to stop the Super League than relying on the owners’ good sense).

Artificial Migrant intelligence. The right loves to say immigrants are “coming over here and taking our jobs”, but maybe their new rallying call will be: “immigrants are coming over here and automating our jobs”. Who is driving the growth in Artificial Intelligence-related occupations is the subject of a new paper that might get read in that light. The headline finding is that foreign-born workers account for 55 per cent of the growth in AI related occupations in the US since 2000 – with places that had more educated immigrants seeing more specialisation in AI. The pro-migration angle on this of course is that what is really going on is that the supply of suitable workers is the real constraint on creating AI related jobs – so you can’t have a big AI sector without some migration.

Globalising less. For an example of how to make a provocative argument clearly, read Adam Posen’s article on what he labels America’s “self-defeating economic retreat”. He’s taking aim at the US consensus that it’s the growth in globalisation that has been increasing inequality. His key argument = it’s odd to blame globalisation for doing that in the US over the past two decades because if anything America has been pursuing a policy of being less integrated with the rest of the global economy (relative to other countries that have become more integrated but are less unequal than the US). His conclusion? “It is the self-deluding withdrawal from the international economy over the last 20 years that has failed American workers, not globalization itself.”

Chart of the Week

When people economists talk about inequality, they usually cite the Gini coefficient. The UK currently has a Gini coefficient of 33.5 (vs 33.1 in Germany and 28.5 in France). Knowing what that means is good if you’re applying to come work at the Resolution Foundation but Gini chat is not what our newly reopened pubs are full of. Chart of the Week – from a major new report – tries a slightly more human way of illustrating different inequality levels. The starting point is that UK, France and Germany all have remarkably similar income levels for typical working-age households. But it also shows what higher inequality in the UK means in reality: the poorest fifth of British households are a massive 20 per cent poorer than their French counterparts (in contrast, the richest fifth of households in the UK are significantly richer than the rich elsewhere). So if you want to level up, it’s not hard to see where we need to start.