Enabling access to vocational education can help bring down income inequality
Mumbai: As automation threatens to take away jobs, workers without skills for new jobs are likely to be hit the hardest. Focusing on vocational training rather than university education may be a better way to deal with this challenge, according to a new National Bureau of Economic Research (NBER) working paper by Joshua Aizenman from the University of Southern California and others. While university education requires a lot of investment — be it public or private — it does little to impart employment skills, the authors argue. Vocational education, on the other hand, allows a country to reap the benefits of phenomena such as learning by doing. The paper also suggests that Germany’s lead over the US in value-added in manufacturing output could be because of a greater emphasis on vocational training in the former.
Inequality in the post-Piketty world is widely seen as a problem for economies, with a growing body of research suggesting that inequality may be harmful for long-term growth. However, a new research paper by Jason Furman of Harvard University suggests that the link between growth and inequality is more nuanced, and depends on the sources of inequality, and the nature of the economy. Furman suggests that developed economies focus on prioritizing distribution while policymakers in emerging markets must seek to balance growth and equity.
Why do dictators fall? Because of their own mistakes, according to a new NBER working paper by Daniel Treisman of the University of California, Los Angeles, who analysed data from 1800 to 2015 to make this claim. Two-thirds of all transitions from authoritarian rules to democracy was not a result of people’s struggles or voluntary surrender of power by rulers. These were accidents triggered by actions of dictators, such as elections, military conflicts, etc. The paper attributes this to factors rooted in cognitive bias such as over-confidence and illusion of control.
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What explains the fact that some politicians make good policies and some do not? A World Bank paper by Stuti Khemani uses the demand-supply framework to explain this. Khemani argues that policymaking depends on the interaction of voters (demand side) and politicians and bureaucrats (supply side). Values and behaviours of voters and politicians play an important role in this interaction. Even autocrats who are more concerned with providing better public goods can improve the situation from the supply side. If voters do not value a service, poor provisioning can be a demand-driven outcome even in democracies. In case the existing supply-side agents are not responsive to a society’s demands from governments, a new set of citizens would try and enter the ranks of supply-side players by seeking political support for these demands.
Although start-ups are increasingly threatening the market share of incumbents in a number of sectors, the battle is often far from easy. This is because incumbents enjoy an advantage in terms of entrenched legal and regulatory barriers. Their long association with policy-makers also gives incumbents an advantage over the efforts of start-ups to lobby for policy changes. To deal with these challenges, start-ups have begun mobilizing public opinion to add heft to their lobbying efforts. This can take various forms such as online petitions, partnering organisations and even sponsoring consumer clubs. For example, Uber mobilized 90,000 signatures for an online petition to get approval to start ride-sharing in Toronto. This seems to be an effective strategy as politicians often feel compelled to respond to grass-roots action.
Economics Digest runs weekly, and features interesting reads from the world of economics.
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