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Brexit's 'Leave' Votes Came Amid High Inequality

What Britain's decision to ditch the European Union says about populism and economics

History might well remember 2016 as the year populism swept the developed world. While that's a political phenomenon, it's underpinned by economic trends. 

Income inequality seems to have played a role in Britain's June 23 vote to leave the European Union, a move seen as a populist reaction against immigration, based on new research from Brussels-based Bruegel. In the U.S., Republican Donald Trump has tapped into frustrations about lower-quality jobs with stagnating wages – and new research from White House economists shows why his rallying cry might hold so much appeal.

This week's research wrap also takes a look at China's housing market and a quirk in Census Data. Check this roundup each week for the latest on interesting and influential economic work from around the globe.  

Brexit and inclusive growth

In areas of the U.K. with higher inequality and poverty, voters were more likely to support Brexit, according to the Bruegel analysis. The finding is a sign that high inequality can "boost protest votes in referenda and elections," the authors write. "This is another key lesson that politicians in other countries should learn from the Brexit vote."

One percentage point of higher income inequality, as measured by the Gini coefficient, boosted the share of 'leave' votes by about 0.9 percentage point, the researchers' findings implied.   

An Anatomy of Inclusive Growth in Europe
Published Oct. 27, 2016
Available on the Bruegel website

Monopsony: Not a board game, still important.  

In a monopoly, one seller controls a good's price. In job market monopsony, imperfect competition allows employers to dictate the price they pay for labor. Importantly, such a situation may be taking root in the U.S. right now. 

Job openings have been rising sharply, in contrast to hires. That should stoke faster wage growth as employers compete for workers, but it's been slow to do so – suggesting that firms are resisting bidding up pay, one signal of imperfect competition.  Non-compete agreements, licensing requirements and a decline in unions might be drivers, based on a White House Council of Economic Advisers paper.

This could be factoring into inequality and pushing down labor's share of income, the authors write.

Labor Market Monopsony: Trends, Consequences, and Policy Responses
Published October 2016
Available on the White House website

Assessing whether China's housing market is a boom or a bubble

The jury is out. Chinese housing prices rose by more than 10 percent between 2013 and 2014, and the number of vacant homes has increased amid a building boom. While this could lead to a bust, "the demand for real estate in China is so strong that current prices might be sustainable," Harvard economist Edward Glaeser and his co-authors write. Still, that hinges on an important assumption: The level of new supply needs to be "radically curtailed," which depends on government policy. 

A Real Estate Boom With Chinese Characteristics
Published October 2016
Available on the NBER website

For the U.S. demographic nerds... 

It's an often-reported fact that migration between U.S. states has slowed considerably in recent years, but a dive into Census surveys suggests that part of the decline is overstated. Some respondents just aren't reporting their moves, even though administrative data show that they've crossed state borders. Still, the downward trend in economic migration – moving specifically for a job – holds across data sources. 

Interstate Migration and Employer-to-Employer Transitions in the U.S.: New Evidence from Administrative Records Data
Published October 2016 
Available on the Ideas website

Is Uncle Sam pushing baby boomers to retire? 

University of California at Berkeley economist Alan Auerbach and colleagues say "Yes." While working longer can raise older workers' living standards, extra earnings also cause them to incur higher taxes, which erodes those benefits. Medicare income limits, Social Security earnings test limits and Social Security income-tax thresholds could all factor into the work disincentive. 

This could exacerbate an already big problem. Baby boomers are expected to live long lives and face low interest rates, which could cause them to have a tougher time financing their retirements than today's elderly, who already exhibit high poverty and rely heavily on Social Security. 

Is Uncle Sam Inducing the Elderly to Retire? 
Published October 2016
Available on the NBER website



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