Year: 2018

The Doha round of the World Trade Organization talks started way back in 2001, and seems to have come to a standstill. Regional trade agreements became the preferred path for many nations, with 20-25 per year being negotiated most years from 2002-2016. Then the number drops off sharply in 2017, and falls almost to zero so far in 2018.

Here\’s an illustrative figure from the World Trade Organization Regional Trade Agreements Information System.  There\’s a lot more background on regional trade agreements at the website.

[This post originally ran on Labor Day, 2011.]

It\’s clear that the first Labor Day celebration was held on Tuesday, September 5, 1882, and organized by the Central Labor Union, an early trade union organization operating in the greater New York City area in the 1880s. By the early 1890s, more than 20 states had adopted the holiday. On June 28, 1894, President Grover Cleveland signed into law: \’\’The first Monday of September in each year, being the day celebrated and known as Labor\’s Holiday, is hereby made a legal public holiday, to all intents and purposes, in the same manner as Christmas, the first day of January, the twenty-second day of February, the thirtieth day of May, and the fourth day of July are now made by law public holidays.\” (Note: This post has been reprinted on this blog on Labor Day since 2011.)

For those who need the sweet and savory flavor of economics to accompany their end-of-summer Labor Day picnic (and really, don\’t we all need that?), here are links to some posts on labor market topics, mostly from earlier this year.

1) Rebalancing the Economy Toward Workers and Wages (March 5, 2018)

I quote John Bates Clark , probably the most eminent American economist of his time in his 1907 book, Essentials of Economic Theory

\”In the making of the wages contract the individual laborer is at a disadvantage. He has something which he must sell and which his employer is not obliged to take, since he [that is, the employer] can reject single men with impunity. … A period of idleness may increase this disability to any extent. The vender of anything which must be sold at once is like a starving man pawning his coat—he must take whatever is offered.\”

Are there some ways to tip the balance a bit more toward workers? Jay Shambaugh and Ryan Nunn have edited an ebook, Revitalizing Wage Growth: Policies to Get American Workers a Raise, with nine chapters on causes of wage stagnation and policy proposals to address it

2) \”The Job Guarantee Controversy\” (April 30, 2018)

With Senator Bernie Sanders in the forefront, some Democratic members of Congress are planning a bill to guarantee jobs that pay $15 per hour, not including mandatory benefits packages, for all Americans. Legislative details have not yet been announced (!), but several sets of plan have been published recently, including on the website of the Sanders Institute, which was founded by Jane O\’Meara Sanders, wife of the senator. Here, let\’s run through a couple of the more prominent plans, and then list on criticisms that have been bubbling up–with a focus on critiques from writers typically identified as being on the political left. …

Ultimately, it feels to me as if proposals for a federal job guarantee proposal are a cry of despair, erupting from an exhausted patience. To me, the underlying message is: \”Stop being distracted by small-scale arguments and day-to-day political compromises, drop the cautious incrementalism, and pay the money to help those who want to work. Stop quibbling, and just make it happen!\” Righteous exasperation always has a rhetorical appeal. But the real world is full of costs and tradeoffs, and if the US political system wants to make some dramatic moves to help US workers, considerably better options than a federal job guarantee are available.

3) \”The Rising Importance of Soft Skills\” (January 30, 2018)

Leading tech companies like Google have found that their most productive and valuable employeees are often not those with the most technical skills or cognitive ability. Instead, the most valuable employees have the soft skills in communication, teamwork, and seeing the big picture.

The evidence for the rising importance of soft skills goes beyond the anecdotal. David J. Deming provides an overview of economic research on this topic in \”The Value of Soft Skills in the Labor Market\” (NBER Reporter, 2017 Number 4). Deming cites evidence that for the US economy as a whole, the number of STEM (science, technology, engineering, mathematics) jobs rose rapidly from 1980 to 2000, but has declined since then. Moreover, the labor market returns to higher levels of cognitive skill have declined, too.

\”While cognitive skills are still important predictors of labor market success, their importance has declined since 2000. An important recent paper finds significantly smaller labor market returns to cognitive skills in the early and mid-2000s, compared with the late 1980s and early 1990s. … In a 2017 study, I replicate this finding and also show that returns to soft skills increased between the 1979 and 1997 NLSY waves. … We are not witnessing an end to the importance of cognitive skills — rather, strong cognitive skills are increasingly a necessary — but not a sufficient — condition for obtaining a good, high-paying job. You also need to have social skills. Between 1980 and 2012, social skill-intensive occupations grew by nearly 12 percentage points as a share of all U.S. jobs. Wages also grew more rapidly for social skill-intensive occupations than for other occupations over this period.\”

4) The Modern Shape-up Labor Market (July 23, 2018)

The “shape-up” system of hiring was described by journalist Malcolm Johnson in his Pulitzer-prize winning articles about crime on the docks of New York City in the late 1940s (Crime on the Labor Front, quotation from pp. 133-35). The description is perhaps best-remembered today for how it was depicted in the 1954 movie “On the Waterfront.” But it\’s a scenario that I think also captures some of the concerns of modern workers in the \”gig\” economy, where more and more workers are dependent on finding a new gig every month or week or day. Johnson described the process for a longshoreman of seeking and getting a job back in the 1940s in this way:

“The scene is any pier along New York’s waterfront. At a designated hour, the longshoremen gather in a semicircle at the entrance to the pier. They are the men who load and unload the ships. They are looking for jobs and as they stand there in a semicircle their eyes are fixed on one man. He is the hiring stevedore and he stands alone, surveying the waiting men. At this crucial moment he possesses the crucial power of economic life or death over them and the men know it. Their faces betray that knowledge in tense anxiety, eagerness, and fear. They know that the hiring boss, a union man like themselves, can accept them or reject them at will. He can hire them or ignore them, for any reason or for no reason at all. Now the hiring boss moves among them, choosing the man he wants, passing over others. He nod or points to the favored ones or calls out their names, indicating that they are hired. For those accepted, relief and joy. The pinched faces of the others reflect bleak disappointment, despair. …

“Under the shape-up, the longshoreman never knows from one day to the next whether he has a job or not. Under the shape-up, he may be hired today and rejected tomorrow, or hired in the morning and turned away in the afternoon. There is no security, no dignity, and no justice in the shape-up. … The shape-up fosters fear. Fear of not working. Fear of incurring the displeasure of the hiring boss.”

5) \”Four Examples from the Automation Frontier\” (February 12, 2018)

Cotton pickers. Shelf-scanners at Walmart. Quality control at building sites. Radiologists. These are just four examples of jobs that are being transformed and even sometime eliminated by the newest wave of automated and programmable machinery. Here are four short stories from various sources, which of course represent a much broader transformation happening across the global economy.

The biggest European union has managed to achieve a long-standing goal: German metal-workers can now work a 28-hour week, if  they wish. John Pencavel tells the story and draws out some implications for US labor markets in \”The Future of Hours of Work?\” a Policy Brief written for the Stanford Institute of Economic Policy Research (September 2018). Pencavel writes:

\”In February 2018, following three 24- hour strikes at companies including Daimler, Siemens, and Airbus, Europe’s largest industrial labor union, IG Metall, in an agreement with employers, secured for each German metal worker the right to work less than the standard weekly hours of 35 and as few as 28 hours a week, if a worker so chooses. Those who work fewer hours will be paid only for hours worked, so they will see their weekly earnings fall below those who work longer. 

\”This arrangement comes into effect in January 2019 and will be revisited and perhaps revised in two years when the agreement comes to an end. Some newspaper reports claim that the union turned down a 6.8 percent pay increase to achieve its goal of obtaining for workers a wider choice in their working hours. For their part, employers won the right to offer more workers longer 40-hour contracts. Workers are not required to accept longer hours. In short, both employers and employees have secured greater flexibility in their choice of working hours. This change in work schedules in Germany has been preceded by experiments with shorter hours in Sweden and with calls from workers in Britain for a standard four-day working week. 

\”German workers already work substantially fewer hours than the typical American worker. Their standard workweek is 35 hours and their vacations are weeks longer than those of American workers. By law, full-time German employees are currently entitled to a minimum of four weeks of paid vacation in addition to a number of public holidays, the precise number varying from one state to another; there is no such legal right for American employees. Consequently, one estimate from the Organisation for Economic Co-operation and Development (OECD) is that the average annual hours of work of the typical German worker are about 400 hours fewer than those of the American worker — or about 10 weeks shorter based on a 40-hour workweek.\” 

What do German employers get out of this deal? They get flexibility, in the sense that if some workers want to work longer hours, the firm can hire them to do so. Furthermore, Pencavel argues that for many workers, labor exhibits diminishing marginal productivity over the work-week: that is, the 25th hour worked in a week is on average more productive than the 35th or the 45th hour worked. Thus, employers will be getting the more productive hours from workers, for the same hourly pay.

Does a drive for lower hours have any resonance in the US economy? Pencavel points out that in the US labor market, weekly hours worked dropped sharply in the decades leading up to 1930 or so, but since then, the decline has largely stopped. (And for the record, American unions in certain induistries remained quite powerful in the 1950s and 1960s, and they might well have succeeded in pushing for lower weekly hours if it had been a priority for them.)

\”An examination of international patent families—using a patent-count measure that includes only applications to at least two distinct patent offices, in order to exclude low-value patents—shows that China and Korea each patent about 20,000 inventions a year. Although this is still substantially below patenting in Japan and the United States (about 60,000 each), patenting activity in China and Korea is comparable to the average of France, Germany, and the United Kingdom. A deeper investigation into the types of patents by economic sector reveals that the rise of patenting in China and Korea is particularly pronounced in the electrical and optical equipment sectors and, in Korea, for machinery equipment as well.\”

Problem: Many places of planet Earth are so hot, at least during significant portions of the year, that it has adverse effects on human health and productivity.

Solution: Air conditioning!

Problem:  The dramatic expansion of expansion of air conditioning all around the world raises demand for electricity. Generating electricity is often done with fossil fuels, which (especially in emerging markets where emissions standards are often more lax) can generate conventional air pollutants, and which in all markets add to carbon dioxide in the atmosphere. In addition, common methods of air conditioning also use refrigerants , which are also powerful greenhouse gases if/when they escape into the atmosphere.

Solution: ???

This scenario sets the stage for \”The Future of Cooling: Opportunities for energy-efficient air conditioning,\” a report published by the International Energy Agency (an autonomous international agency with 29 countries as members, May 2018, free registration may be needed to access report).  Here are some figures and comments that caught my eye.

Here\’s the rise in the stock (right-hand axis in millions of units) and capacity (left-hand axis in gigawatts) of air conditioning around the world. Either way, it\’s roughly a tripling in the last quarter-century.

Here\’s a sense of how the magnitude of energy consumption going to air conditioning and how it has expanded. The blue line is 1990; the yellow line is 2016. In China, electricity going to air conditioning was almost zero in 1990, but it\’s rapidly catching up to US levels.

The report notes:

\”Of the 1.6 billion ACs in use throughout the world at the end of 2016, over half were in just two countries: China, which has 570 million units, and the United States, where there are 375 million …. Other countries with more than 20 million units include Japan, with 150 million, Korea (60 million), Brazil and India (both nearly 30 million). The remaining ACs are mostly in the European Union, where there are nearly 100 million units, and the Middle East (around 50 million units). Nearly 70% of all the ACs globally is in residential buildings. Household ownership of ACs varies enormously across countries, from around 4% in India and less than 10% in Europe, to over 90% in the United States and Japan, and close to 100% in a few Middle Eastern countries. In China, nearly 60% of households now have at least one AC ….

China has seen by far the biggest – and fastest – increase in energy use for space cooling since 1990, with a surge in sales of ACs … Cooling used a mere 6.6 TWh in 1990; by 2016, it consumed 450 TWh, a staggering 68-fold increase. And growth is showing no signs of slowing; it amounted to more than 10% in 2016, the fastest rate since 2009. China’s total energy use for space cooling – and in particular ACs – is fast approaching that of the United States and is likely to surpass it soon given China’s considerable population, though average energy use for cooling per person in China is still less than 20% of that in the United States. Demand in other emerging economies, notably India, is also growing very rapidly, having risen 15-fold since 1990.\”

Demand seems likely to continue rising quickly for a number of reasons: economic growth in emerging markets like India and Brazil, as well as China; greater use of AC in countries where incomes are already relatively high, like countries of western Europe; rising global population; a global shift to a larger share of population living in urban areas; and the demand for air conditiong from rising numbers of elderly around the world, whose health is especially vulnerable to episodes of high heat.

One statistic from the report is that the US uses more electricity for cooling than the  4.4 billion people living in all of Africa, Latin America, the Middle East and Asia (excluding China). Or for another comparison, the US uses more electricity for cooling than the  by the 1.2 billion people in Africa use for everything.

Restraining the growth of future demands for electricity that would be used for cooling can make a big difference, because demand for cooling is often what determines the peak-load demand for electricity. If you can reduce the peak, you can literally build fewer electricity-generating facilities.

The IEA report goes through detailed scenarios for future demand and how it could be reduced by various policies. I\’ll leave that level of detail to the report. I\’ll just say here that the steps aren\’t magic.

Continually ratchet up the efficiency of AC units. They have become about 50% more efficient in last 25 years, but an AC unit will typically last 10 years or more, so greater efficiency now has a future payoff.  Apparently, one study found that \”a 30% improvement in global AC performance by 2030 would reduce peak load by the equivalent of as much as 710 mid-sized coal power plants.\” Design homes and commercial buildings so that they don\’t need as much cooling: shades above windows, natural venting, roofs designed to reflect solar heat, and so on. Investigate methods of cooling that don\’t use as much electricity or refrigerants. Some of the lesser-known examples discussed are \”district cooling networks,\” which \”supply chilled water produced in a central plant to buildings and industrial sites through a network of insulated pipes,\” and \”solar cooling\” technologies that use a heat pump or a sorption chiller (and yes, these technologies get a bit of explanation in the report). .

On a hot day, air conditioning, and refrigeration more broadly, feels to me like a wish come true granted by a passing genie. But in all the stories, the magic of genies comes with a price. As we spread the magic of air conditioning, it\’s time to give some thought to reducing its energy costs.

Homage: I ran across a mention of this report in a leader and an article in The Economist magazine (August 25, 2018). The articles offer some back-of-the-envelope calculations.

\”What is the single most effective way to reduce greenhouse-gas emissions? Go vegetarian? Replant the Amazon? Cycle to work? None of the above. The answer is: make air-conditioners radically better. On one calculation, replacing refrigerants that damage the atmosphere would reduce total greenhouse gases by the equivalent of 90bn tonnes of CO2 by 2050. Making the units more energy-efficient could double that. By contrast, if half the world’s population were to give up meat, it would save 66bn tonnes of CO2. Replanting two-thirds of degraded tropical forests would save 61bn tonnes. A one-third increase in global bicycle journeys would save just 2.3bn tonnes. Air-conditioning is one of the world’s great overlooked industries. …

\”In 2017, the Lawrence Berkeley National Laboratory in California, a research centre, calculated the extra carbon emissions that could be saved if air-conditioners were better. If HFCs were phased out and all units were as efficient as the best ones, the world could be spared around 1,000 average-sized (500MW capacity) power stations by 2030. There would be many more air-conditioning units, but each would use less energy. In India, this would save three times as much in carbon emissions as the prime minister’s much-vaunted plan to install 100 gigawatts of solar capacity by 2022. In China, it would save as much as eight Three Gorges dams (the largest dam in the world).\”

One model of the process of writing is that you just take what\’s in our head and put into written words. The process is how Samuel Taylor Coleridge described the writing of his famous poem \”Kubla Khan\” (\”In Xanadu did Kubla Khan/ A stately pleasure dome decree …\”). In Coleridge\’s telling, he was reading a book that mentioned Kubla Khan and dropped off to sleep (probably under the influence of opium) and woke up with the poem fully formed in his mind. He started writing it down, frantically, until he was interrupted by a visitor and the rest of the poem vanished from his mind.

I\’ve known writers who have the essay almost fully formed in their mind,  and it just pours out on to the page. It\’s happened for me a few times. But most writing for me, and I suspect for others, starts from a place of less clarity. There\’s an idea, to be sure, and some support for the idea. But as you try to put the ideas into concrete words, you become aware of a lack of precision in what you are saying, of a failure to capture what you really mean to say, of holes and inconsistencies in the argument, of places where the argument is not persuasive or connected or fluent. I sometimes find this hard to convey to students: Writing isn\’t (usually) about transcribing thoughts, but instead is intertwined with a process of developing insights that are more accurate and complete.

The great author Flannery O\’Connor once wrote in a note to her agent: \”I have to write to discover what I am doing. Like the old lady, I don\’t know so well what I think until I see what I say; then I have to say it over again.\”

(The letter was written to her literary agent on January 21,  21, 1948, while she was in the process of writing Wise Blood. It\’s reprinted on p. 5 in The Habit of Being: Letters of Flannery O\’Connor.)

But O\’Connor\’s comment raises an obvious question. She wrote \”like the old lady.\” Who is \”the old lady?\”

Her reference seems to trade back to a comment from E.M. Forster in his 1927 book  \”Aspects of the Novel,\” (1927). Forster is discussing a 1925 novel by Andre Gide called  Les Faux-monnayeurs, or The Counterfeiters. Here\’s the passage from p. 151 of Forster\’s book.

“Another distinguished critic has agreed with Gide – that old lady in the anecdote who has accused her nieces of being illogical. For some time she could not be brought to understand what logic was, and when she grasped its true nature she was not so much angry as contemptuous. “Logic! Good gracious! What rubbish!” she exclaimed. “How can I tell you what I think till I see what I say?” Her nieces, educated young women, thought that she was passée; she was really more up-to date than they were.” 

Although the phrasing of this idea by Gide, Forster, and O\’Connor is especially pithy, the idea that you need to write in order to find out what you really think has come up before. For example, there\’s a throwaway line in the 1852 novel by William Makepeace Thackeray, The History of Henry Esmond: \”[T]here are a thousand thoughts lying within a man that he does not know till he takes up the pen to write …\”

Other than the Gide/Forster/O\’Connor version of this insight, my favorite version is from the Montaigne\’s essay \”On the Education of Children,\” written around 1579-1580.

\”I hear some making excuses for not being able to express themselves, and pretending to have their heads full of many fine things, but to be unable to bring them out for lack of eloquence. That is all bluff. Do you know what I think these things are? They are shadows that come to them of some shapeless conceptions, which they cannot untangle and clear up within, and consequently cannot set forth without: they do not understand themselves yet. And just watch them stammer on the point of giving birth; you will conclude that they are laboring not for delivery, but for conception, and that they are only trying to lick into shape this unfinished matter.\”

(The translation of the quotation is from \”The Complete Works of Montaigne: Essays, Journal, Letters,\” as translated by Donald M. Frame, Hamish Hamilton; London, p. 125).

I published this post five years today, but because I\’ve seen the same myth repeated a few times in the last few weeks, it seemed worth running it again as the Labor Day holiday looms ahead.
_________

Why do students have summer vacation? One common answer is that it\’s a holdover from when America was more rural and needed children to help out on the farm, but even just a small amount of introspection suggests that answer is wrong. Even if you know very little about the practical side of farming, think for just a moment about what are probably the most time-sensitive and busiest periods for a farmer: spring planting and fall harvest. Not summer!

I\’m not claiming to have made any great discovery here that summer vacation didn\’t start as result of following some typical pattern of agricultural production. Mess around on the web a bit, and you\’ll find more accurate historical descriptions of how summer vacation got started (for example, here\’s one from a 2008 issue of TIME magazine and here\’s one from the Washington Post last spring). My discussion here draws heavily on a 2002 book by Kenneth M. Gold, a professor of education at the City University of New York, called School\’s In: The History of Summer Vacation in American Public Schools.

Gold points out that back in the early 19th century, US schools followed two main patterns. Rural schools typically had two terms: a winter term and a summer one, with spring and fall available for children to help with planting and harvesting. The school terms in rural schools were relatively short: 2-3 months each. In contrast, in urban areas early in the first half of the 19th century, it was fairly common for school districts to have 240 days or more of school per year, often in the form of four quarters spread over the year, each separated by a week of official vacation. However, whatever the length of the school term, actual school attendance was often not compulsory.

In the second half of the 19th century, school reformers who wanted to standardize the school year found themselves wanting to length the rural school year and to shorten the urban school year, ultimately ending up by the early 20th century with the modern school year of about 180 days. Indeed, Gold cites an 1892 report by the U.S. Commissioner of Education William Torrey Harris which sharply criticized \”the steady reduction that our schools have suffered\” as urban schools had reduced their school days down toward 200 per year over the preceding decades.

With these changes, why did summer vacation arise as a standard pattern during the second half of the 19th century, when it had not been common in either rural or urban areas before that? At various points, Gold notes a number of contributing factors.

1) Summer sessions of schools in the first half of the 19th century were often viewed as inferior by educators at that time. It\’s not clear that the summer sessions were inferior: for example, attendance didn\’t seem to drop off much. But the summer sessions were more often taught by young women, rather than by male schoolteachers.

2) School reformers often argued that students needed substantial vacation for their health. Horace Mann wrote that overtaxing students would lead to \”a most pernicious influence on character and habits … not infrequently is health itself destroyed by overstimulating the mind.\” This concern over health seemed to have two parts. One was that schoolhouses were unhealthy in the summer: education reformers of the time reminded teachers to keep windows open, to sprinkle floors with water, and to build schools with an eye to good air ventilation. Mann wrote that \”the small size, ill arrangement, and foul air, of our schoolhouses, present serious obstacles to the health and growth of the bodies and minds of our children.\” The other concern over health was that overstudy would lead to ill-health, both mental and physical. An article in the Pennsylvania School Journal expressed concern that children \”were growing up puny, lank, pallid, emaciated, round-shouldered, thin-breasted all because they were kept at study too long. Indeed, there was an entire medical literature of the time that \”mental strain early in life\” led to lifelong \”impairment of medical and physical vigour.\”

Of course, these arguments were mainly deployed in urban areas as reasons for shortening the school year. In rural areas where the goal was to lengthen the school year, an opposite argument was deployed, that the brain was like a muscle that would develop with additional use.

3) Potential uses of a summer vacation for teachers and for students began to be discussed. For students, there were arguments over whether the brain was a muscle that should be exercised or relaxed during the summer. But there was also a widespread sense at the time, almost a social mythology, that summer should be a time for intense interaction with nature and outdoor play. For teachers, there was a sense that they also needed summer: as one writer put it, \”Teachers need a summer vacation more than bad boys need a whipping.\” There was a sense in both urban and rural areas that something like a 180-day school, with a summer vacation, would be the sort of job that would be attractive to talented individuals and well-paid enough to make teaching a full-time career. For teachers as well, there was a conflict as to whether they should spend summers working on lesson plans or relaxing, but the slow professionalization of teaching meant that more teachers were using the summer at least partially for work.

4) More broadly, Gold argues that the idea of a standard summer vacation as widely practiced by the start of the 20th century grew out of a tension in the ways that people thought about annual patterns itself in the late 19th century. On one side, time was viewed as an annual cycle, not just for agricultural purposes, but as a series of community practices and celebrations linked to the seasons. On the other side, time was starting to be industrial, in a way that seasons mattered much less and the smooth coordination of production effort mattered more. A standard school year with a summer vacation both coordinated society along the lines of time, while offering a respect for seasonality as well.

Most of the fuss about international trade focuses on goods and services that cross international borders. But a number of major US multinational companies–GM, Ford, Starbucks, Nike, and others–have  both production facilities and large sales in China.  For example, GM sells more cars in China than in the United States. Overall,  US exports of goods and services to China in 2016 were $170 billion; but total revenues of US multinationals producing and selling in China that year was twice as high at  $345 billion. 

The US Bureau of Economic Analysis has just published  \”2016 Data on Activities of U.S. Multinational Enterprises,\” (August 24, 2018).  The focus is on \”majority-owned foreign affiliates\” of US companies. These operations split up the production process across international boundaries: some of the value-added in the US, some in the other country. The BEA report notes:  

\”Worldwide current-dollar value added of U.S. MNEs decreased 1.5 percent to $5.2 trillion. Value added by U.S. parents, a measure of their direct contribution to U.S. gross domestic product, was nearly unchanged at $3.9 trillion, representing 24.2 percent of total U.S. private industry value added. MOFA value added decreased to $1.3 trillion. … U.S. parents accounted for 22.3 percent of total private industry employment in the United States. Employment by U.S. parents was largest in manufacturing and retail trade.\”

Here are a few graphs with some comparisons. The first figure shows that the US domestic amount of value-added for these US multinationals is much higher than the share of their foreign affiliates, as is the amount of investment spending on plant and equipment and on research and development. Most of the employment of these companies is US-based, too. 

Unsurprisingly, most of these US multinationals are focused on other high-income countries. Of the $5.7 trillion total sales for these majority-owned foreign affiliaties in 2016, about half was from European affiliates, and another 10% from Canadian affiliates. 

As noted before, sales of US majority-owned foreign affiliates in China were $345 billion in 2016. However, the value-added by those foreign affiliates was just $65 billion, meaning that the vast majority of the value-added for these sales was attributed to sources outside China. For example, a GM car assembled in China included both tangible parts and intangible engineering expertise from other countries outside China. 

Total employment in China by these US majority owned foreign affiliates was 1.7 million in 2016. But before you start thinking that the US firms should have hired US workers instead for these  jobs, total compensation for the Chinese employees was $29 billion, which works out to an annual salary of about $17,000 per year. That\’s good pay in China, but pretty close to minimum wage in the US economy. Taken together with the value-added numbers, it suggest that the US majority-owned foreign affiliates in China (as in other places) are helping to support  higher-paid US jobs.   

In a trade war crossfire, US multinational enterprises that produce in other countries are very exposed. They have a lot of money and effort invested in cracking open foreign markets and operating there. But given their location, they are vulnerable to foreign politicians who want to fire off a few trade war shots of their own. 

In my experience, everyone likes pictures of money. Here are a few from a short article called \”Striking the Right Note: An inside look at paper money around the world,\” by Tadeusz Galeza and James Chan, published in the IMF journal Finance & Development (June 2018, pp. 60-61).

How many zeros can you fit on a currency note? Yugoslavia managed 11 zeros, but Zimbabwe went to 14 zeros. I don\’t know how many zeros Venezuela has on its currency these days.

Sometimes it takes three paper notes to buy a cup of coffee. Sometimes it takes two notes to buy a car.

There\’s even a quirky little classroom-friendly cartoon video appended to the article on \”The History of Paper Money.\”