Work From Home, Technology, and the Singularity

    In response to the pandemic, businesses and consumers were forced to adopt technology at unprecedented speeds. In an article by Enda Curran, he emphasized that the adoption of technology paired with work from home will lead to increases in labor productivity and economic growth. The normalization of WFH has reduced time lossed from commuting while increasing the time for more productive tasks. While employees shifted to working from home, businesses  automated routine tasks through increased investments in robotics and other technologies, allowing workers to focus on less repetitive tasks and work on higher value output. A company that comes to mind that is a reflection of the automation trend is UiPath. The company's products are an example of Robotic Process Automation, which detects what's on screen to perform routine computer tasks across desktop applications. The positive outlook of these trends, however, are not widespread. Robert Gordan, a professor at North western university said, “it’s going to take a long time for the economy to adjust in the areas that are being severely damaged by working from home, like public transit and the downtown office buildings.” Research from a survey of more than 30,000 Americans indicates that 20 percent of full work days will continue at home after the pandemic ends, compared to just 5 percent before the pandemic (Berrero et al.). Additional results from the survey are captured in figures 1, 2, 3, and 4.

Figure 1-4: Source (Berrero et al.)

According to Blanchard, “it is useful to think of technological progress as increasing the amount of effective labor available in the economy.” Effective labor is labor multiplied by the state of technology (AN). Similar to Chapter 11, capital per effective worker and output per effective worker converge to constant values representing the steady-state. Part of the growth story discussed by Cullen could represent an improvement in effective labor (AN), captured in part by an increase in A, the state of technology. Another aspect of the pandemic is a sharp increase in the savings rate seen in figure 5. We can see significantly higher levels of saving and a near recovery of real gross domestic product per capita. Noticeably, an increase in the savings rate would have a negative effect on output in the short run as consumption decreases. However, an increase in the savings rate would over time increase the steady-state levels of output, raising output per effective worker and capital per effective worker. Figures 6 and 7 capture the effects of an increase in the savings rate. Will the higher savings rate persist post-pandemic remains to be seen, but if it remains on average higher than before there could be long-term increases in the steady state leading to more growth.

Figure 5: Personal Savings Rate (Right), Real GDP p capita (Left)

Figure 6: An increase in the savings rate (Blanchard)

Figure 7: The higher savings rate increases to a new level, but growth remains the same. (Blanchard)

                            

        

      

    Blanchard discusses the “age-old worry that research will become less and less fertile” where most discoveries have been made and technological progress slows down. This has yet to become the case, the improvement of technology over time, particularly in computing power and artificial technology has led some to think about the Singularity theory. The cost per computation per second has fallen dramatically captured in figure 8. When computer intelligence matches and surpasses human intelligence. Experts often are quick to predict what computers cannot do only to be proved wrong later. The rollout of machine intelligence can be seen in three stages: calculation, control, and innovation. Nordhaus in a journal article sought to investigate the effects of the Singularity on the economy and developed tests to indicate whether it has occurred. Of the six tests two returned a positive signal, but the trend shows that the singularity is greater than 100 years away. 

Figure 8: Decline in cost per computation per second

Works Cited

Berrero, Jose Maria, et al. “Why Working from Home Will Stick.” Working Paper No. 2020-174, Apr. 2021. Becker Friedman Institute.

Blanchard, Oliver. “Technological Progress and Growth.” Macroeconomics, Boston, Pearson, 2017, pp. 241–258.

Curran, Enda. “Productivity Is Finally Looking Up, and the Gains Could Lift Growth.” Bloomberg.com, 4 May 2021, www.bloomberg.com/news/articles/2021-05-04/productivity-surge-during-covid-could-mean-gdp-growth-around-the-world. Accessed 10 May 2021.

Mischke, Jan, et al. “Will Productivity and Growth Return after the COVID-19 Crisis? | McKinsey.” Www.mckinsey.com, 30 Apr. 2021, www.mckinsey.com/industries/public-and-social-sector/our-insights/will-productivity-and-growth-return-after-the-covid-19-crisis.

Nordhaus, William D. “Are We Approaching an Economic Singularity? Information Technology and the Future of Economic Growth.” American Economic Journal: Macroeconomics, vol. 13, no. 1, 1 Jan. 2021, pp. 299–332, 10.1257/mac.20170105. Accessed 10 Jan. 2021.

UiPath Inc. “What Is Robotic Process Automation? - RPA Software | UiPath®.” Uipath.com, 2017, www.uipath.com/rpa/robotic-process-automation.

Who is Really Better Off? Calculating Standard of Living for Northern Ireland and the Republic

Marissa Aulgur and Sadie Brownlee

 

Map of the United Kingdom of Great Britain and Northern Ireland and the Republic of Ireland

Since the final steps of the United Kingdom’s withdrawal from the European Union, conversations have arisen surrounding the possibility of a united Ireland. The leadership of the United Kingdom and the European Union both asserted that the Good Friday Agreement would continue to be upheld through the United Kingdom leaving the European Union. Still, breaches to this peace treaty have already begun to occur with the development of checkpoints for commerce entering the Republic of Ireland from the United Kingdom. The inability to uphold EU laws regarding trade now that Northern Ireland no longer remains part of the European Union has resulted in calls for a referendum to unify Ireland into one nation, with complete independence from the UK. This calls into question the economic differences between Northern Ireland and the Republic of Ireland and what the unification of these territories would mean for the populations of both of these territories. 

            A paper by Graham Gudgin, published by Queen’s University, asserts that Northern Ireland (a part of the UK) has 20% higher living standards than the Republic of Ireland (independent country, member of the European Union). It is essential to note the connection between Gudgin, Queen’s University, and the UK: the bias of the UK in potentially supporting propaganda pertaining to the importance of Brexit is not to be overlooked. The claim of Northern Ireland being 20% better off is pulled from a report that found the per capita spending is 20% higher in Northern Ireland than in the Republic of Ireland. This report was later revised to be a 4% difference amongst the territories, not accounting for differences in price (Gudgin claims if it did, the difference would remain the same) (Burke-Kennedy). Blanchard explains how consumption can be faulty in explaining quality of life. While it is easy to compare consumption between countries using exchange rates, this does not reveal quality of life because living costs are not accounted for, prices are not leveled out. In the example of Russia and the United States in the textbook on page 202, using only nominal consumption and converting rubles to dollars, Russia’s consumption is 10% of the United States. However, using Purchasing Power Parity and computing consumption relative to prices in both countries, Russia’s consumption is actually 53.5% of the United States. This new figure completely changes the perception of Russian consumption (Blanchard). Another study found, by GDP, that the Republic of Ireland is 50% better off than Northern Ireland. Additionally, poverty is found to be 8% higher in Northern Ireland than in the Republic of Ireland (Burke-Kennedy). This problem shows that determining which territory has a higher standard of living is nearly impossible because there is no agreed-upon way to measure this. 

In their paper “Income or Consumption: Which Better Predicts Subjective Well-Being,” Carver and Grimes investigate how best to measure quality of life through subjective well-being. Subjective well-being in this study was determined from a survey that asked respondents to evaluate their life satisfaction overall and in specific aspects. Carver and Grimes compared measurements of the Economic Living Standard Index (ELSI), a consumption-based measure that relies on self-rated questions, versus income for the population of New Zealand. Their study found that ELSI is a better way to assess subjective well-being than mere income, indicating that while there may be a correlation between money and happiness, income is inadequate in explaining quality of life. In regressions where both income and ELSI were included, income was almost always insignificant while ELSI was always significant. A key finding is the importance of the subjective factors of ELSI. When subjective aspects of ELSI were included in surveys, income was always insignificant. When income was compared to just the objective parts of ELSI, it was significant but only at the 10% level. Standard of living is a complex idea that requires qualitative and holistic measurements to attempt to explain it (since even ELSI has its flaws) (Carver and Grimes). Without uniform and effective ways to measure living standards, it will be challenging to assess countries like the Republic of Ireland and Northern Ireland and this will continue to fuel misconstrued conclusions that further political agendas rather than empirical analysis.  

Works Cited

Burke-Kennedy, Eoin. “Which Has a Higher Standard of Living – Northern Ireland or the Republic?” The Irish Times, The Irish Times, 18 Apr. 2021, www.irishtimes.com/business/economy/which-has-a-higher-standard-of-living-northern-ireland-or-the-republic-1.4540629. 

Carver, Thomas, and Arthur Grimes. “Income or Consumption: Which Better Predicts Subjective Well-Being?” Review of Income and Wealth, vol. 65, Nov. 2019, pp. S256-80. EBSCOhost, search-ebscohost-com.ezproxy.plu.edu/login.aspx?direct=true&db=ecn&AN=1834521&site=ehost-live&scope=site.

Blanchard, Olivier. Macroeconomics. 7th ed., Pearson Education Inc., 2017. 

“Map of the United Kingdom of Great Britain and Northern Ireland and the Republic of Ireland.” EveryCRSReport, 14 Mar. 2017, www.everycrsreport.com/reports/RS21333.html.

COVID-19 and the Standard of Living in Developing Countries

Mac Hiller and Emily Larson

The negative effects of the COVID-19 pandemic have been experienced by communities worldwide. One of the concerns of the pandemic is how it has impacted living standards in different countries. In the long run, the standard of living can be measured by real gross domestic product (GDP) per person. We can use this measure to gauge the well-being or happiness of people across countries. To compare various countries and their respective level of standard of living, differences in prices of goods, currencies, and consumption patterns must be accounted for when determining differences in purchasing power of similar goods. Adjusted real GDP, therefore, measures the differences in purchasing power across countries, often called purchasing power parity (PPP) numbers. The purchasing power parity method accounts for similar prices of the same currency across different countries and their respective consumption bundles. For explanation purposes, suppose two countries, A and B, consume two distinguished goods of different markets called Food and Transportation that make up their entire per capita consumption. Country A can buy (adjusted to US dollars) Food at $1 per unit and Transportation at $2 per unit while Country B can buy (also adjusted to US dollars) Food at $0.90 per unit and Transportation at $2.50 per unit. At these prices, Country A consumes 1,000 units of Food and 2,000 units of Transportation while Country B consumes 1,000 units of Food and 1,800 units of Transportation. To find the purchasing power parity per person of Country A in terms of Country B’s price level we consider:

PPP(Country A's bundle w/Country B's prices)=$5,900=($0.90 *1,000) + ($2.50 *2,000)

Compared to the unadjusted per capita Country A consumption bundle with its own prices; 

Country A GDP (PPP own price) = $5,000=($1*1,000)+($2*2,000).

In this example, Country A’s purchasing power parity is less than Country B’s ($900 less) according to their relative prices and consumption bundle of Food and Transportation. These differences in purchasing power among countries are important when considering if money can buy, or promote, happiness. In rich countries, like the US, the large growth of real per capita GDP since the 1950s has largely been the result of advancements in technology. In economics, technology is anything that helps produce things faster, better, or cheaper, thus improving our quality of life by allocating time and resources towards other more important things. Over time, per person income will increase in correlation to the increasing “average life satisfaction” from more technology being implemented. This strong correlation of higher income and life satisfaction (or happiness) has been shown to occur in both high- and low-income countries. However, the correlation between increasing per-person income and average life satisfaction is stronger in poorer countries due to disparities in relative income levels.

         COVID-19 has created a shock to these income levels in lower-income countries. A recent study looked at measurements of unemployment, income, and even food access to see how COVID-19 has impacted the living standards of countries classified as low and middle income. The study, which surveyed over 30,000 households across 9 countries in April 2020, found significant drops in income, employment, and access to food (Egger et al, 2021). For example, during the crisis period, the median drop in income was around 70% and the median drop in food access was 45%. A news article published briefly before the journal elucidated many of these concerns. It stated that there are long-term impacts to developing countries due to economic shocks. This is because low-income households are more likely to adopt coping strategies such as reducing food consumption, and this nutritional deprivation in the long term leads to a lower accumulation of human capital (Hill and Narayan, 2021).

Evolution of key indicators over time.

Food Insecurity in Bangladesh and Nepal.

            A stark difference between developing and developed countries is their ability to respond to the negative shock. In developed countries, output losses can be mitigated by government programs, employer adjustments to hours or work, or household savings. The issue in low- and middle-income countries is they may not have these protections (Egger et al., 2021). We have seen this play out during the pandemic. In the US, we have observed several rounds of stimulus checks to Americans. Conversely, in developed countries, the journal article comments that in the 9 countries surveyed, the proportion of respondents who reported benefiting from government or non-profit help was a median proportion of 11% (Egger et al., 2021).

This evidence indicates the stark difference in the support that consumers of developed countries experienced versus developed countries in response to the pandemic. In discussions about changes in the standard of living, economists often talk about the force of compounding, which refers to how output per person can compound over time (Blanchard, 2017). The level of investment in sectors like education and technology affects the rate of growth countries experience over time. In richer countries, the level of investment in education and innovative technology is often higher compared to poorer countries. The long-term concern about COVID-19 is its impact on the long-run economic growth of countries. The negative economic shock to these countries can result in years of loss of growth (Blanchard, 2017). These shocks were perhaps exacerbated by the fact that many of these countries did not have the same government assistance in comparison to developed countries.

References

Blanchard, O. (2017). Macroeconomics (7th ed.). Pearson. 

Egger, D., Miguel, E., Warren, S. S., Shenoy, A., Collins, E., Karlan, D., … Vernot, C. (2021). Falling living standards during the COVID-19 crisis: Quantitative evidence from nine developing countries. Science Advances, 7(6). https://doi.org/10.1126/sciadv.abe0997. 

Hill and Narayan. (2021). What COVID-19 can mean for long-term inequality in developing countries. World Bank Blogs. https://blogs.worldbank.org/voices/what-covid-19-can-mean-long-term-inequality-developing-countries.