Technology and the future of the labour market

Speaker: Daniel Susskind, Balliol College, Oxford
Chair: Adam Bennett, St Antony’s College, Oxford

These days, it is hard to imagine a topic with more significant implications for the future than the impact of technology on the labour market. It is also hard to find people who have combined policy work with research on this topic, such as Daniel Susskind. In this seminar, he presented his insights, particularly regarding the role of ‘advanced’ capital in overturning traditional understandings of the relationship between technology and labour market skills.

Susskind begins by looking at historical data on the labour market. Thus, in the 20th century a ‘skills wage premium’ emerged based on increasing returns to college education. Strikingly, this premium remained even as more and more people were graduating from college due to the skill-biased nature of technological change, which meant demand for skilled labour to operate this new technology outpaced increasing supply. By contrast, in the 19th century, the industrial revolution appeared to have a bias toward increasing the demand for unskilled workers, displacing skilled workers (such as the luddites) with machines that could be operated by unskilled workers. Initial data from the 21st century suggest that today both things are happening at the same time, leading to more employment at the bottom and the very top of the skill distribution, but also to the ‘hollowing out’ the semi-skilled middle classes, which have thereby seen their wages stagnate.

Public debt in advanced countries: problems and solutions

Speaker: Carlo Cottarelli, IMF Executive Director for Italy

Chair: Charles Enoch, St Antony’s College

Following the global financial crisis, public debt spiked in many advanced countries. However, according to Carlo Cottarelli, the risks, which accompany living with high debt-to-GDP ratios, are not often discussed publicly. This has prompted him to write a book, What We Owe – Truths, Myths, and Lies about Public Debt, which forms the basis of his PEFM talk.

Cottarelli began with a striking chart demonstrating the level of public debt in advanced economies. As was clearly visible, after World War II there was an unprecedented build-up of debt in peacetime. Notably, these ratios do not include the hidden liabilities in terms of pension and healthcare entitlements, which are likely to rise, but are outside the focus of Cottarelli’s work.

Facing the pensions challenge: Lessons from Australia

Speaker: Nicholas Morris, University of New South Wales, Sydney

Chair: David Vines, Balliol College

It is hard to imagine a bigger long-term challenge for advanced economies than funding their pension systems going forward. To address this, many countries have introduced ‘defined contribution’ schemes through private pension funds. However, as Nicholas Morris highlights drawing on his research on Australia, such funds could also face complex management problems that lead them to underperform.

Prof. Morris begins by setting the context for his talk. Pension funds in Australia have accumulated assets worth over 100% of national GDP that are expected to grow to 7 trillion Australian dollars by 2035. As a result, complex industries have emerged to manage the funds, charging relatively high fees in comparison to international benchmarks. However, such funds have still underperformed for several key reasons despite no lack of scrutiny and reports. First, while they look diverse on the surface, they tend to only have limited competition in practice leading to oligopolistic behaviour. Second, splitting the regulator into five different agencies overseeing pensions has meant that nobody takes overall responsibility. Third, legal changes have weakened trust law protection, particularly by not forcing unregulated entities to report costs, which has often led to the outsourcing of management.

Aspects of the ECB’s monetary policy: State-of-play and future prospects

Greece and the Euro Zone: The IMF Perspective

Speaker: Poul Thomsen (Director, European Department, IMF)
Chair: Adam Bennett (St Antony’s College)

In the midst of ongoing negotiations with Greece over a third IMF financial assistance program, PEFM had the pleasure of hosting Poul Thomsen, the Director of the European Department at the IMF. Drawing on his extensive experience as mission head for IMF teams in Greece, Mr. Thomsen presented the Fund’s perspective on the problems that continue to plague the Greek economy and the way forward.

Mr. Thomsen began by offering some comments on the prospects of the euro area as a while. Overall, the recovery is gaining momentum and cyclical unemployment is low. This is partly due to fiscal relaxation, but most of it is happening in precisely the countries with the least fiscal space, leaving them potentially vulnerable to renewed shocks. More worrying still, the euro area long-term potential is limited because of structural problems that predate the euro crisis, particularly low productivity growth that was contributing to stalled convergence. Therefore, while there are missing elements of EMU architecture that clearly needed to be added or completed, the main problems were really at the national level. In a currency union that is not a political union the ability to deal with shocks depends on policies at the national level.

Ireland and Brexit

Speakers: Lord Jay of Ewelme (House of Lords), Kalypso Nicolaides (St Antony’s College), Cathryn Costello (St Antony’s College)
Chair: Graham Avery (St Antony’s College)

The ‘Irish question’ did not necessarily receive a lot of attention in the run-up to the Brexit vote, but has since then emerged as one of the hardest issues for Theresa May. It also resonates beyond the corridors of Whitehall as an overflowing crowd in attendance at the European Studies Centre made evident. In response, the three speakers sought to highlight some ways to manage the risks involved, but warned that the stakes are high.

Lord Jay, part of the House of Lords EU Select Committee, began the discussion by saying he fears the Irish dimension would be seen as a consequence of decisions taken on other grounds. He sees a risk that Brexit might bring into question the remarkable progress in the peace process in Northern Ireland. In particular, should the UK leave the Customs Union some kind of controls along the border become very hard to avoid. In turn, this is a serious issue for the nationalist communities along the border and is not impossible for some level of violence to re-emerge. 

Aspects of the ECB’s monetary policy: State-of-play and future prospects

Speakers: Iannis Mourmouras (Deputy Governor, Bank of Greece)

Chair: Charles Enoch (St Antony’s College, Oxford)

As the debate over ECB’s monetary policy continues, it was a pleasure to host a renowned policymaker and academic such as Iannis Mourmouras, Deputy Governor of Bank of Greece, at this joint PEFM-SEESOX event. Prof. Mourmouras drew on his experience to analyze the current targets and instruments of the ECB and offered some thoughts over the thorny question of ‘exit strategies’.

Prof. Mourmouras began his talk by discussing the track record of inflation targeting regimes over the last 15 years. Whereas they have been exceptionally successful in bringing inflation down, policymakers in Europe today face the challenge of how to push inflation back up given a persistent negative output gap. Prof. Mourmouras argues that low inflation is the symptom, not the cause of low nominal demand. The ‘suspects’ for the effect include demographic changes that lead to increased household saving, the legacy of the sudden stop and sovereign debt crisis in Southern Europe, and expectations for future low rates. Mario Draghi, the ECB president, argues further that there is insufficient investment demand to absorb all savings in the global economy.