free typing jobs at home…

typing jobs at home…

I think a new “meme” is about to be born.

On productivity, it occurs to me that the relevance of the wages/producer prices comparison might not be clear to you. As a simple rule of thumb, if there is productivity improvement then wages should be rising faster than producer prices by some noticeable amount (the productivity element). If they aren’t (on aggregate) but are rising at the same rate (which is the case) then this is prima facie evidence that there isn’t substantial productivity improvement taking place. Of course on aggregate means that some may well be getting substantial productivity improvements, but that others are losing productivity just as fast.

For “moving up the technology ladder” read moving from low productivity to high productivity sectors. There seems to be a general consensus that Latvia isn’t doing this fast enough.

This is in the last IMF staff report:

In the aftermath of the Russia crisis, Latvia successfully reoriented the destination of its exports, but failed to transform its product structure. Exports therefore remain concentrated in resource and labor-intensive goods (wood and wood products comprise 30 percent of exports), embodying inputs of low- and medium-skill blue collar workers. Among the EU8, Latvia has—by a wide margin—the largest share of low-tech, laborintensive exports which compete directly with low-cost countries. In contrast to several other new EU members which are moving up the technology ladder, in recent years Latvia has seen some regression in the skill- and technology content of its exports.

This is all explained in the BICEPS paper I linked to in the text (I reproduce some of the relevant parts below). I think it is worth the read, if you are sufficiently interested. The basic point is that, due in part to the Lat-euro peg, Latvia cannot apply effective monetary or exchange rate policy to resolve the problem, but has to rely exclusively on fiscal policy. There are thus insufficient instruments available to meet the policy constraints. That is why I am effectively suggesting adding an instrument: labour supply policy. In this way Latvia could basically begin to address the challenge without risking crashing everything.

This is an extract from the BICEPS report

In order to examine the nature of Latvian imbalances and the efficacy of the antiinflation plan it is useful to use an analytical framework of economic policy making dating back to the pioneering work of Tinbergen (1952). Tinbergen analysed the implications of the number of targets and instrument for policy making. In particular, Tinbergen showed that if there were fewer instruments than targets then it is likely that the simultaneous achievement of the desired targets will be impossible. The Tinbergen framework was further developed by Swan (1963) specifically for the purpose of macroeconomic policy analysis in an open economy with a fixed exchange rate and has been extensively used ever since. The core analytical construct is the Swan diagram.

It is generally assumed that a country would wish to achieve both internal and external balance,
where these are typically defined with respect to the particular circumstances of a given country.

Thus, in the Latvian context internal balance might be defined in terms of an inflation rate that satisfies the Maastricht criterion combined with something close to full employment or a sustainable rate of growth. External balance might be defined in terms of the sustainable medium term level of the current account. For an emerging market economy such as Latvia external balance could be consistent with a sizable current account deficit, but one that is regarded as sustainable in terms of capital flows.

Look. I think the problem the whole direction of your argument is following is that it simply isn’t taking on board the issue that these labour supply shortages are eventually going to become global (of course, that doesn’t mean that our the whole planet is going to come to a grinding halt, but just that our whole attitude to economic growth as we know it is likely to be forced to change.

China isn’t, IMHO, going to ever be a net exporter of people on a huge scale. Labour tightening is already slowly setting in in China (remember they are growing consistently at a rate of over 10% per annum). So Chinese migration is largely going to be an internal phenomenon, as is India’s. Bangladeshi’s of course already arrive in large numbers across Southern Indian.

The thing is, it isn’t the size of a population that matters, but its structure (Ireland is in this sense not essentially different from China).

I have put up two population examples up here to help you get the picture - Ireland 1986 to 2000, and Latvia 2006 and 2025 (these could be regarded as similar periods in the economic growth history) - and you should be able to see the clear differences between these two cases and the extraordinary difficulties that Latvia faces.

“It’s a complicated topic. But the key point is, I’d really hesitate to say that Latvia is doomed to be a net exporter of labor for many years to come.”

Obviously. They should be becoming a significant net importer. They will only become a big exporter again if this situation crashes, which it may well do. If that happens there can be an outflow of important proportions, and this may produce a situation from which, Latvia, quite simply, never recovers.

“Inward migration is not an option; the migrants would be Russians or Ukrainians, and the Latvians already have more of those than they care to have.”

This is precisely the point. This attitude needs to change, and sharpish. As I keep stressing, they are playing with fire here.

“One possibility is that Latvia will have to try to develop alternative sources (Romania? Serbia? China? Vietnam?);”

Well this would be possible, but everyone can’t be getting migrants from Vietnam (and they are below replacement fertility themselves now aren’t they?), and if you want a share of the action you really need the recruiting agency out there now. Spain, btw just open a recruitment office in Senegal. Get in quick before Africa goes too :).

“A missing piece: what are Latvia’s productivity figures? Wages are obviously rising faster than productivity, but how much faster?”

Well, this really isn’t the way to put it. Wages and producer prices are rising at roughly the same rates - with a time lag of several months - as you can see from these two graphs here.

What this means is that while wages and producer prices are rising at around the 30% mark annually, aggregate productivity may be what, in the 0% to 1% range, if we are lucky. And this isn’t all, since obviously the decline in productivity (competitiveness) is very bad in the export sector, hence the deteriorating trade situation. The IMF staff team had some relevant things to say about what was happening to productivity in this environment. I’ll try and dig some comments out later.

Hum. Do we have any examples of countries growing quickly despite a fixed or shrinking labor supply?

I think we do. I can think of two offhand.

And, again, productivity. Do we have any figures for that?

Doug M.

Ravenor

“I think it rather interesting that the Latvian prime minister had the nerve to warn the citizenry against excess borrowing because the piper will have to be paid in the future…”

Yes, I’m sure you are right in this. But I think the big point I was making is that exhortations to people not to spend are rather empty normally (normally central bankers have a more direct way to achieve this, but in the Latvian case they don’t), yet this - and trying to tighten the fiscal situation (which they aren’t doing anything like as much as the IMF are urging) - is all they are left with. The bottom line is that the anti-inflation package introduced in March doesn’t seem to treat the problem anything like seriously enough.

Hi Doug,

“Economic diasporas can be pretty volatile. Consider Ireland, which went in a decade from being a major exporter of labor to a major importer.”

Well first off, this isn’t simply about diasporas (and Turkey would be another case like the Irish one in this sense), but about demographic transitions, and about the peculiar nature of the way the transition has occured in Eastern Europe, and the specific problems this represents. Ireland and Turkey are fundamentally different from Eastern Europe in this sense.

Of course, people from Latvia *might* go back, but this is why I included the graph on the differential between Irish and Latvian wages. To stem the flow (and even attract people back) they need to close that gap. But to close that gap they need to grow, and quickly, but growing quickly is what they can’t do in a sustainable way due to the labour supply shortage. This is the vicious circle they are in.

“But we’re already seeing this in the wealthier countries of the EU-15. Budapest, for instance, is full of thirtysomething Hungarians who got a degree in Hamburg then worked for five years with Arthur Anderson in Berlin.”

Yep, well please note that Latvia is just a very extreme case of a much more general problem. This, I suppose, is why it is so interesting, as it does give us some measure of what *might* happen elsewhere.

The latest Hungarian employment data are just in - I have a post on this here - and as we can see the structural tightening due to population limitations is also starting slowly to bite here, despite the evident slowdown in the US economy. As I also link in the post, similar situations to that we can see developing in Hungary are now to be seen in places as far apart as Italy, Germany and Japan.

More background can be seen in the sort of anecdotal evidence which is coming out of Russia and Poland. Russia already has a substantial need for inward migration to maintain economic growth, and Poland’s unemployment is coming down very quickly indeed.

OK, that’s it for now, work calls. I’ll reply to the rest as and when.