News & EventsNewsletterSpring 2014 Newsletter
The Case for Raising Wages for Lowest-Paid Workers
As policy makers debate raising the federal minimum wage from $7.25 to $10.10 an hour, workers around the country have joined picket lines, and states and municipalities are considering their own minimum and living wage ordinances. PERI has studied the real effects of raising the wages of the lowest-paid workers.
What would a minimum-wage increase cost businesses, fast-food restaurants in particular? Jeannette Wicks-Lim and Robert Pollin examine the potential impact of a proposal to raise the federal minimum wage, concluding that an increase to $10.50 would impose only modest costs, and could meaningfully improve living standards for low-wage workers while avoiding the unintended consequence of reducing employment. They explain how they arrived at their key finding: the average fast-food establishment could fully cover the costs from the $10.50 minimum by raising prices 2.7 percent.
>> "The Costs to Fast-Food Restaurants of a Minimum Wage Increase to $10.50 per Hour"
The County of Milwaukee, Wisconsin considered a $12.45 per hour living wage standard for businesses holding contracts or receiving subsidies from the county. This study by Jeannette Wicks-Lim shows that this living wage measure will strengthen the County’s ability to support decent-quality jobs in the county without compromising its ability to deliver high-quality services to its residents. The key finding of the Wicks-Lim study is that establishing the $12.45 living wage standard will have only negligible impacts on the overall costs of businesses covered by the measure. (An update: In March, the Milwaukee County Board overrode the County Executive’s veto of a living wage of at least $11.32 an hour; it will be put into effect this year.)

>> "An Assessment of the Fiscal Impact of the Proposed Milwaukee County Living Wage" 
U.S. Banks and Financial Instability: How Big is Too Big?
The 2007-2008 financial crisis laid bare the destructive nature of the operations of investment banks and other financial institutions. These banks had grown massive, made billions in profits, and in the process placed the U.S. and the global economy at risk.
In a research project funded by the Institute for Economic Thinking (INET), PERI Co-Director Gerald Epstein, in conjunction with PERI researcher and Emeritus Professor James Crotty, and several UMass Economics Department graduate students, have studied the role of the U.S. financial sector in the U.S. economy. What contributions has the financial sector made to the overall health of the economy? Do these contributions justify the risks and costs imposed by the financial sector on society, as evidenced by the recent crisis?
Epstein and his co-authors presented several recent working papers that came from the INET project at the recent Eastern Economics Association Conference in Boston.
In “Sectoral Net Lending in Six Financial Centers,” Joao Paulo A. de Souza and Gerald Epstein investigate the degree to which non-financial corporations have been financing investment in these economies—one of the key roles of a well-functioning financial sector—from the years 1950 to 2011. While in most of these countries, non-financial corporations relied on external financing of investment for most of the period, in the run-up to the crisis, this was not the case. In some of these countries, non-financial corporations were actually lending to other sectors. This is a sign of the increasing “financialization” of non-financial corporations.
In “Long-term Trends in Intra-Financial Sector Lending in the U.S.: 1950-2012,” Juan Antonio Montecino, Gerald Epstein and Iren Levina show that the financial sector in the U.S. was lending increasing amounts of finance to other financial institutions, rather than to non-financial corporations for capital investment purposes. Lending between financial institutions comprised a tenth of all lending throughout 1950-1980; by 2011, it accounted for nearly half of all financial sector lending. The authors show that in the later period, this intra-financial lending was dominated by the new financial instruments at the core of the financial crisis.
In a companion paper, “Intra-Financial Lending, Credit and Capital Formation,” Juan Antonio Montecino and Gerald Epstein present econometric evidence indicating that this increased used of financial sector funds for lending to other financial corporations was associated with declines in investment by non-financial corporations, and a decline in credit supply to this sector. It appears that a combination of financialization of non-financial corporations, and the changes in the operations of financial institutions to more speculative activities, have led to a decline in real investment in the U.S. during the 1990s and early 2000s.
Much empirical research has found a positive relationship between the size of the financial sector and economic growth. But Simon Sturn and Gerald Epstein in “Finance and Growth: The Neglected Role of the Business Cycle” find that some of this association might be a statistical artifact: there is a pro-cyclical relationship between the size of the financial sector and the business cycle. Once this pro-cyclical connection is controlled for, the positive association between the size of the financial sector and economic growth in the recent period disappears.
Together, these and related papers by Gerald Epstein and co-authors raise serious questions about the social value of our current financial system, dominated by massive institutions focused on speculation rather than promoting productive investments and expanding decent employment.
Working papers:
>> Long-term trends in Intra-Financial Sector Lending in the US: 1950-2012
>> Intra-Financial Lending, Credit, and Capital Formation
>> Sectoral Net Lending in Six Financial Sectors
>> Finance and Growth: The Neglected Role of the Business Cycle
Building Capacity Among African Policymakers
Over the past four decades, African countries have lost over $1.3 trillion due to capital flight, vastly exceeding the continent’s liabilities of less than $300 billion. Léonce Ndikumana and James K. Boyce’s research has documented that contrary to a common perception of Africa as an indebted and aid-dependent continent, that it is instead a “net creditor” to the rest of the world. There is an urgent need to stem capital flight, repatriate stolen assets, and audit external debts to advance development financing, combat corruption, and improve transparency in the global financial system. (See their research, including detailed country-level time series of capital flight, at PERI’s Capital Flight from Africa page.)
Ndikumana and other PERI academics have endeavored to understand the ramifications of capital flight from Africa, and its impact on economic development. In one project, Ndikumana is coordinating an effort with the African Economic Research Consortium (AERC), aimed at exploring the economic and institutional dimensions of capital flight from Africa, and providing country-level evidence on the phenomenon. He is co-editing a book (to be published by Oxford University Press), Capital Flight from Africa: Causes, Effects and Policy Issues, containing research from the project. These country-level studies are primarily conducted by young African economists, with the intent of building capacity for AERC. In March, Ndikumana led the inaugural workshop in Nairobi on the country studies phase of the project. (See photo, above.)
PERI’s African Development Policy Program initiated a capacity building program for African policy makers, organized around emerging development issues in Africa. Workshops in the spring of 2013 were held on “Macroeconomic Policy for Inclusive Growth, Employment Creation and Poverty Reduction” in Nairobi, and “Capital flight reversal and development financing in Africa” in Dakar. This coming May, there will be a workshop held on capital flight from Africa in Nairobi; in October, a workshop on “The Political Economy of Reforms in Post-Conflict and Fragile States” in Dakar. These workshops seek to raise awareness among African policy makers, and contribute to increasing the capacity to design appropriate policies to tackle emerging development issues. 
Environmental Indicators and Human and Community Health
The Toxic 100
Now up to date in its fifth edition, The Toxic 100 Air Polluters index identifies the top U.S. air polluters among the world's largest corporations. The index relies on the U.S. Environmental Protection Agency's Risk Screening Environmental Indicators (RSEI), which assesses the chronic human health risk from industrial toxic releases. The underlying data for RSEI is the EPA’s Toxics Release Inventory (TRI), in which facilities across the U.S. report their releases of toxic chemicals. In addition to the amount of toxic chemicals released, RSEI also includes the degree of toxicity and population exposure. The Toxic 100 Air Polluters ranks corporations based on the chronic human health risk from all of their U.S. polluting facilities.

>> The Toxic 100 Air Polluters Index
Race, Ethnicity and Income Disparities in Exposure to Air Toxics 
People of color and low-income communities tend to face disproportionate pollution hazards in the United States. But patterns of environmental inequality may vary from place to place. In this working paper, Klara Zwickl, Michael Ash, and James K. Boyce (Director of PERI’s Program on Development, Peacebuilding, and the Environment) investigate two questions: Do racial and ethnic disparities in exposure to industrial air toxics decline with rising incomes? And given inter-regional differences in the history of industrial development, patterns of immigration, and the extent of residential segregation, are there significant variations across regions in patterns of environmental inequality?

>> “Regional variation in environmental inequality: Industrial air toxics exposure in U.S. cities”
Further Responses to Reinhart/Rogoff on Government Debt and Austerity
In this revised paper published in the Cambridge Journal of Economics, Herndon, Ash and Pollin (HAP) replicate Reinhart and Rogoff (RR) and find that selective exclusion of available data, coding errors, and inappropriate weighting of summary statistics lead to serious miscalculations that inaccurately represent the relationship between public debt and GDP growth among 20 advanced economies. Between the years 1946 – 2009, countries with public debt/GDP ratios above 90 percent averaged 2.2 percent real GDP growth, not −0.1 percent, as RR reported. RR’s results for median GDP growth rates for the years 1946 - 2009, and mean and median GDP growth figures from 1790 to 2009, are all distorted by similar methodological errors. HAP’s overall evidence refutes RR’s claim that public debt/GDP ratios above 90 percent consistently reduce a country’s GDP growth. In a separate supplemental paper, Pollin responds to charges by RR and others regarding HAP’s professional conduct, political biases and related issues as well as the significance of their findings for economic policy. Pollin summarizes the state of the debate in a separate blog for Oxford University Press. 

>> "Does High Public Debt Consistently Stifle Economic Growth? A Critique of Reinhart and Rogoff," published Cambridge Journal of Economics version

>> Pollin, "Responses to Charges Concerning the Herndon/Ash/Pollin Replication"

>> Pollin blog, "Why Reinhart and Rogoff are Wrong"
Other recent PERI publications

The Industrial Policy Revolution II: Africa in the 21st Century: Chapter by James Heintz
Macroeconomic Policy in Sub-Saharan Africa
James Heintz writes in a chapter in The Industrial Policy Revolution II: Africa in the 21st Century about examples from three areas of macroeconomic policy – real exchange rate, monetary policy, and fiscal policy – that have implications for industrial development in Africa. In each of the areas, the chapter asks specific questions, and suggests ways in which macroeconomic policy can be reclaimed and used as a tool for development.
New Labor Forum: Robert Pollin
Coal Miners and the Green Agenda
Robert Pollin addresses two issues concerning President Obama's Climate Action Plan. First, contrary to the President's proposal, there is no realistic prospect for "clean coal" technologies to enable U.S. coal production to continue at anything close to its current level while still achieving reasonable greenhouse gas emissions targets. The second concern is: how can we provide adequate transition assistance for the roughly 50,000 coal industry workers whose jobs will be lost through the necessary coal industry contraction? Pollin builds from the idea of the late labor leader Tony Mazzocchi for a "Superfund" to support workers displaced by necessary environmental transitions.
PERI Working Paper: Esteban Pérez Caldentey and Matías Vernengo
Raúl Prebisch and Economic Dynamics: Cyclical growth and center-periphery interaction
Prebisch believed that understanding the evolution of capitalist economies over time and in different contexts required a general cycle approach, which he labeled ‘dynamic economics’, encompassing all the different areas of economic activity. His dynamic economics developed between 1945 and 1949 stemmed from a critique of both Neoclassical and Keynesian theories which Prebisch viewed as static representations of capitalism. 
PERI Working Paper: Mathieu Dufour and Özgür Orhangazi
Capitalism, Crisis and Class: The U.S. Economy after the 2007-2008 Financial Crisis
The post-1980 era witnessed an increase in the frequency and severity of financial crises around the globe, a majority of which took place in low- and middle-income countries. Studies of the impacts of these crises have identified three broad sets of consequences, including disproportionate impact on labor and low-income segments in society; an uptick in further deregulation and liberalization; and an increase in capital inflows. The 2007-08 financial crisis in the US provides an opportunity to extend this analysis to a leading high-income country and see if the patterns visible in other crises are also visible in this case. 
PERI Working Paper: Junji Tokunaga and Gerald Epstein
The Endogenous Finance of Global Dollar-Based Financial in the 2000s: A Minskian Approach
Global financing patterns have been at the center of debates on the global financial crisis in recent years. The global imbalance view, a prominent hypothesis, attributes the financial crisis to excess saving over investment in emerging market countries which have run current account surplus since the end of the 1990s. Instead, the authors argue that a key cause of the global financial crisis was the dynamic expansion of balance sheets at large complex financial institutions, driven by the endogenously elastic finance of global dollar funding in the global shadow banking system. 

PERI Research Brief: Jeannette Wicks-Lim
Creating U.S. Manufacturing Jobs: How "Buying American" Can Raise the Job-Creation Potential of Public Transit Investments
This research was conducted in collaboration with the Jobs to Move America campaign, spearheaded by Los Angeles Alliance for a New Economy (LAANE), to raise the U.S. job creation potential from public transit investments. U.S. transit agencies currently invest about $5.6 billion annually in new buses and trains. In this brief, Jeannette Wicks-Lim measures how many more jobs these investments could create if these buses and trains contain a higher level of domestic content than the 60 percent required by the federal “Buy America” policy. Wicks-Lim finds that when manufacturers source 100 percent of their vehicles’ components domestically, they create at least 26 percent more U.S. jobs.
PERI Working Paper: Sanya Carley and Martin Hyman
The "Grand Experiment": An early review of energy-related Recovery Act efforts
This study examines energy-related Recovery Act program implementation between 2009 and 2013; how funds were allocated and disbursed, which programs were targeted, and the impacts of the Recovery Act. Results indicate that the Recovery Act provided many immediate benefits to the economy, environment, and the energy sector, but also suggest that implementation was hindered by the coordination required between federal, state, and local agencies; reporting and transparency requirements; pre-existing layoffs and furloughs; inexperience with new programs; and inconsistencies with pre-existing laws and regulations. 
PERI Working Paper: Lucas Bernard, Aleksandr V. Gervorkyan, Thomas I. Palley and Willi Semmler
Time Scales and Mechanisms of Economic Cycles: A Review of Theories of Long Waves
This paper explores long wave theory, including Kondratieff, Kuznets, Schumpeter, Goodwin, Keynes-Kaldor-Kalecki, and Minsky. This literature has been out of favor for many years but recent developments suggest a reexamination is warranted and timely.

PERI Working Paper: Cem Oyvat
Agrarian Structures, Urbanization and Inequality
This study examines the impact of agrarian structures on income inequality over the long run. High land inequality increases income Gini coefficients in the urban sector as well as the rural sector, by creating congestion in the urban subsistence sector and feeding the growth of the urban reserve army of labor. An econometric analysis shows that the impact of initial land ownership distribution on both national and urban income distribution can persist for decades.

PERI Working Paper: Thomas I. Palley
Enriching the Neo-Kaleckian Growth Model: Nonlinearities, Political Economy, and Financial Factors
This paper expands the neo-Kaleckian growth model to include nonlinearities, political economy factors, and interest rate and stock market effects. The expansions enrich the model and enhance its capacity to analyze and explain developments within contemporary capitalist economies.
Dollars & Sense: James K. Boyce
Pursuing Profits--Or Power?
In this short essay, James Boyce considers the dynamics of power and profit as motivators for the corporate sector. He points out that while profits may grow as part of an expanding economy, power is a limited commodity, and its redistribution toward corporations and away from people has a profound impact.
Climactic Change: James K. Boyce and Manuel Pastor
Clearing the Air: Incorporating Air Quality and Environmental Justice into Climate Policy
This paper presents evidence on intersectoral, intrasectoral and spatial variations in co-pollutant intensity of industrial point sources in the United States, and discusses options for integrating co-benefits into climate policy design to advance efficiency and equity.
PERI Working Paper: Jianjun Li and Sara Hsu
Shadow Banking in China: Institutional Risks
The authors examine China’s shadow banking institutions for financial risks. They use a bank stress test to analyze solvency risk for the systemically important financial institutions and the banking system as a whole. They find that there is some risk of bankruptcy and potentially a risk of liquidity shortages, for which they lack sufficient data to run a stress test. They conclude with policy recommendations.
PERI Working Paper: Ahmet Benlialper and Hasan Comert
Implicit Asymmetric Exchange Rate Peg under Inflation Targeting Regimes: The Case of Turkey
After the 2000s, many developing countries let exchange rates float and began implementing inflation targeting regimes based on mainly manipulation of expectations and aggregate demand. However, most developing countries implementing inflation targeting regimes experienced considerable appreciation trends in their currencies. Might have exchange rates been utilized as implicit tools even under inflation targeting regimes in developing countries? To answer this question and investigate the determinants of inflation under an inflation targeting regime, this paper analyzes the Turkish experience as a case study. 

Review of Keynesian Economics: Gerald Epstein
Developmental Central Banking: Winning the Future by Updating a Page from the Past
The ongoing Great Financial Crisis that began in 2007–2008 has dramatically called into question the previously dominant neoliberal approach to macroeconomic and financial policy. Unfortunately, these lessons are being learned in a highly uneven manner – and in some important circles, not at all. In light of this struggle to adopt developmentally friendly financial structures, it is critical that the history and practices of these policies, as well as their costs and benefits, be well understood. In this article, Gerald Epstein surveys some of the history and practices of these policies, as well as their costs and benefits, including a discussion of policies undertaken following the crisis.
PERI Working Paper: Christian E. Weller and Ghazal Zulfiqar
Financial Market Diversity and Macroeconomic Stability
The authors study the link between financial market diversity and economic instability in developing economies for the past few decades, and find that financial market diversity matters for economic stability for most subperiods during the past two decades as well as for most regions. Their research particularly suggests that greater diversity is associated with faster growth, larger credit markets, a broader deposit base, and a smaller chance of asset bubbles, all of which could contribute to more stability.
UNU-WIDER Working Paper: Lynda Pickbourn and Léonce Ndikumana
Impact of Sectoral Allocation of Foreign Aid on Gender Equity and Human Development
While developing countries have made some progress in human development since the turn of the century, many are still lagging behind in important goals such as education, health, nutrition and access to clean drinking water and improved sanitation. Moreover, gender equity remains a major challenge in most countries. In this paper for the United Nations University, Pickbourn and Ndikumana examine the role that foreign aid plays in generating these outcomes, using panel data from OECD-DAC on the sectoral allocation of development aid, in conjunction with country-level data on public expenditures, human development outcomes and other economic, social and political indicators.

PERI Working Paper: Léonce Ndikumana
Overcoming Low Political Equilibrium in Africa: Institutional Changes for Inclusive Development
This paper examines the role that institutions have played in the performance of African economies over the past decades. It discusses the institutional changes needed to enable African countries to reach inclusive development in the near future. Understanding the forces that govern policy making and the factors that drive growth and its distributional impact can shed light on how African countries can definitively overcome secular low growth and pervasive inequities; in other words, how they can overcome low-development political equilibrium and achieve inclusive development.
PERI Working Paper: Léonce Ndikumana
The Private Sector as Culprit and Victim of Corruption in Africa
This paper examines the symptoms and impacts of private sector corruption in Africa, from the perspective that corruption arises from both relations between the private sector and the public sector as well as transactions falling strictly within the private sector domain.
PERI and The Real News Network: Interviews with PERI scholars on timely topics 

Jeannette Wicks-Lim on the real number of Americans in poverty

Robert Pollin on the many benefits of investing in education

Michael Ash on the top emitters of greenhouse gases in the U.S.

Jeannette Wicks-Lim on the quality and quantity of new jobs

Gerald Epstein on a GAO report on corporate taxes 

James Boyce on why GDP is not a useful economic indicator

James Heintz on the crisis in global youth employment

Robert Pollin on the economic impact of immigrants

Leonce Ndikumana on the rise of Chinese influence in Africa

Jeannette Wicks-Lim on the Wal-Mart strikes and raising the minimum wage

Léonce Ndikumana on the impact of foreign aid on African growth

James Boyce on measuring the real cost of climate change

Gerald Epstein on the debt-ceiling debacle in Congress

Robert Pollin on how wealthy Germans are benefiting from austerity policies

Robert Pollin on why the Republicans fabricated a debt crisis

Jeannette Wicks-Lim on a living wage proposal in Milwaukee

Jeannette Wicks-Lim on $10.10 minimum wage bill

Léonce Ndikumana on inequality slowing growth in South Africa

Gerald Epstein on Yellen's tapering of quantitative easing

Jane D'Arista on the Fed's effect on emerging markets

Robert Pollin on the real impact of a $10.10 minimum wage

Gerald Epstein on budget cuts to a crucial regulatory agency

Léonce Ndikumana on the peace process in the Democratic Republic of Congo

Robert Pollin on the Congressional Progressive Caucus budget

Gerald Epstein on large banks' "too big to fail" advantage

Robert Pollin on Janet Yellen's encouraging start at the Fed

Gerald Epstein on bank regulators' small step in the right direction
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