IMF update

 

Dear maria, As Europe contends with the cold winter months, governments face difficult policy choices as they seek to protect consumers from soaring energy bills in an environment of generally high inflation, write the IMF’s Oya Celasun and Dora Iakova in the December issue of F&D Magazine. They estimate that high energy prices have raised the cost of living for the average European household by about 7 percent this year relative to early 2021—adding to inflationary pressures from disruptions to food shipments and supply chains “With energy prices projected to remain higher than prewar levels for some time, Europe’s policy emphasis must shift rapidly from price-suppressing measures to income relief targeted to the vulnerable.” Read the full article The Scramble for Energy—F&D December 2022 Our latest edition of F&D Magazine focuses on what geopolitical tensions mean for the clean transition. Authors include: Fatih Birol, Daniel Yergin, Ricardo Hausmann, Ted Nordhaus, Thijs Van de Graaf, Andrea Pescatori, Jeromin Zettelmeyer, Oya Celasun, Jason Bordoff, Edward Glaeser, Ratna Sahay, and many more.

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Nick Owen Senior Editor F&D Magazine nowen@IMF.org   P.S. Want to get a print copy delivered to your home or office? Click here to subscribe.

United States How the Green Transition Will Impact US Jobs Photo Credit: adamkaz/iStock by Getty Images The US administration has committed to ambitious climate goals and is casting the transition to net-zero emissions as an opportunity to create new and high-paid “green” jobs. However, labor market transitions can be difficult for some workers. Take the example of a coal miner. If they wish to switch to a non-polluting job, how easy would it be? Would it entail moving across the country? Our research found that the answer is not as straightforward as might be expected. On one hand, the miner won’t have to go very far to find a non-polluting job, as green jobs can typically be found close by. But the transition to a green job may still prove difficult because it requires different skills. The good news is that our research also found that US labor markets have responded flexibly in the past to transitions away from polluting industries, without major disruptions to employment or average workers’ pay. Geographical patterns Our research takes an existing classification of green-intensive jobs based on the underlying number of tasks that use fewer natural resources or make their business more environmentally friendly. Pollution-intensive jobs are those most prevalent in highly polluting industries. When we analyzed the geographical patterns of green- and pollution-intensive jobs in the US, we found that pollution-intensive jobs are clustered in more rural areas, particularly in the Southeast and Southwest. They are particularly prevalent in extractive industries, like mining, but also in wood and textile industries and in sectors like electric power generation, transmission, and distribution. In contrast, green jobs are typically located in the West, Southwest, and in pockets of the Midwest, especially in more urban areas. Notable green sectors include research and development, engineering services, and aerospace manufacturing. Still, we found that areas rich in green-intensive employment tend to either neighbor or overlap directly with pollution-intensive rich areas. In fact, 72 percent of commuting zones rich in pollution-intensive jobs are also rich in green jobs or border another zone that is. Fundamental differences While green and polluting jobs may share the same geographical area, we found that they are substantially different from each other. Green jobs tend to be more skilled and relatively less vulnerable to automation. And they attract a wage premium, even after considering skill levels, age, gender, and geography. We estimate the wage premium of green versus polluting jobs to be around 2 percent and slightly trending upward over time. These systemic differences make transitioning from a polluting to a green job difficult, even if it is offered in the vicinity of the old job. Workers in polluting-intensive jobs, however, find it easier to move to a neutral job—one that is neither green nor polluting, partly because most jobs are neutral. Therefore, greening in the labor market can happen more easily through workers in polluting-intensive jobs finding new neutral jobs first, rather than moving to green jobs directly. Past data confirm these patterns. As more green jobs become available, these patterns could change, and moving to a green job may become easier over time. Experience from past green transitions To understand the ongoing transition, we studied the labor market impacts of past transitions, starting with the Clean Air Act enacted in 1963. The Act requires the US Environmental Protection Agency to develop and enforce regulation to protect the public from air pollution. Our analysis showed that firms that were not compliant with the regulatory limits subsequently shed workers. To give a sense of the magnitude, if a particular industry in an area were to be found non-compliant, total employment in that industry would decline by 2 percent after two years. However, we also found that total employment in that geographical area would remain roughly unchanged. This suggests that workers who lose jobs in non-compliant industries can find work in other industries within the same geographical area. Easing the transition Our findings show that the much-needed green transition will require a shift in the labor force. This is not typically seamless and may entail costs for some workers. As green jobs require higher skills, policy can play a crucial role by helping workers gain the needed skills and become more competitive. Environmental regulations are also an effective tool to help incentivize the transition from polluting to green jobs without negatively affecting overall employment or average pay. Even though there are likely to be significant negative effects in specific parts of the country, our research also suggests that local governments won’t see any meaningful impact on their fiscal positions after such environmental regulations come into effect. With the right policy tools, the US is well placed for the green jobs transition. Along with the ongoing green infrastructure push, a well-rounded policy package should include carbon taxes and a training program for lower-skilled workers so they can find jobs in low-polluting industries that pay more and benefit the economy. A tax break to low- and mid-income workers, like an earned income tax credit, will also provide them with income support during the transition while addressing inequality concerns. **** Katharina Bergant is an Economist in the IMF's Research Department. Rui C. Mano is a Deputy Division Chief in the IMF's Research Department. Ippei Shibata is an Economist in the IMF's European Department. RELATED LINKS From Polluting to Green Jobs The Right Labor Market Policies Can Ease the Green Jobs Transition Further Delaying Climate Policies Will Hurt Economic Growth IMF and Climate Change

Dear maria, In today’s edition, we spotlight global debt, Mia Mottley and Paul Kagame on the IMF’s new resilience fund to overcome climate challenges, debt-for-nature swaps, Europe’s households and how to help them this winter, empowering women, nuclear energy, green jobs in the US, and much more.

Global Debt Riding the Global Debt Rollercoaster Global debt remained above pre-pandemic levels in 2021 even after posting the steepest decline in 70 years, new IMF research shows. The ratio of global public and private debt to GDP fell 10 percentage points in 2021 after surging by 29 points in the previous year, the IMF’s Vitor Gaspar, Paulo Medas, and Roberto Perrelli write in a blog on the latest update of the IMF’s global debt database. The IMF’s database—which is the most comprehensive source of public and private debt data in the world—shows that in dollar terms, global debt has continued to rise, albeit at a much slower rate, reaching a record $235 trillion last year.  “The unusually large swings in debt ratios are caused by the economic rebound from Covid-19 and the swift rise in inflation that has followed," the authors say. The Global Debt Database and the Global Debt Monitor were launched at a virtual roundtable discussion where panelists probed what the findings mean for fiscal policy, particularly in poorer nations.   Climate Change Swapping Debt for Climate or Nature Pledges Can Help Fund Resilience Why Countries Must Cooper Countries that are most vulnerable to climate change—and the associated loss of natural biodiversity—are often those least able to afford investment to strengthen resilience because their budgets are burdened by debt. Debt-for-climate swaps and debt-for-nature swaps seek to free up fiscal resources so that governments can improve resilience without triggering a fiscal crisis or sacrificing spending on other development priorities. Creditors provide debt relief in return for a government commitment to, say, decarbonize the economy, invest in climate-resilient infrastructure, or protect biodiverse forests or reefs. Writing in a blog published on finance day of the United Nation’s Biodiversity Conference in Montreal, IMF Managing Director Kristalina Georgieva says for swaps to really have an impact, the number and size of transactions must be scaled up significantly. “They can be scaled up to complement existing instruments and strengthen resilience in countries on the front line of climate change and loss of natural biodiversity at a time when financing is scarce.” Read articles from the archives of F&D Magazine on why good economics demand that we manage nature better, and how the Caribbean nation of Belize is using a debt swap to protect the Western Hemisphere's largest coral reef.   Resilience and Sustainability Trust IMF Supports Countries to Overcome Climate Challenges (IMF PHOTO/KIM HAUGHTON) Three months ago the IMF launched a fund to support vulnerable countries overcome long-term challenges to their economies, including climate change. Already Barbados, Costa Rica and most recently Rwanda have reached agreements to tap the new Resilience and Sustainability Trust for millions of dollars and other countries are expected to follow. Speaking in Washington alongside the leaders of Barbados and Rwanda, the IMF’s managing director said it was of paramount importance to reform the Fund and a create new instrument to support vulnerable countries. “Climate shocks undermine macroeconomic stability, undermine our ability to support countries to grow and improve the lives and livelihoods of people,” Kristalina Georgieva said. Mia Mottley, the prime minister of Barbados, said economic development and climate resilience should be part of the same conversation and countries require long-term capital to address these challenges. “The IMF has done its part. We now need other institutions to extend their timelines for development capital.” Rwanda’s president, Paul Kagame, said African economies were still struggling with the aftermath of the pandemic and the IMF’s new fund could attract more long-term financing.   “If we can demonstrate that this works and works well, then I think more partners may need to step in and make their contributions.” 📺 Watch a video of the discussion, also featuring Ngozi Okonjo-Iweala, Director-General of the World Trade Organization and Makhtar Diop, Managing Director of the International Finance Corporation.   F&D Helping Europe's Households (SURKOVDIMITRI/ISTOCK) As Europe contends with the cold winter months, governments face difficult policy choices as they seek to protect consumers from soaring energy bills in an environment of generally high inflation, write the IMF’s Oya Celasun and Dora Iakova in the December issue of F&D Magazine. They estimate that high energy prices have raised the cost of living for the average European household by about 7 percent this year relative to early 2021—adding to inflationary pressures from disruptions to food shipments and supply chains “With energy prices projected to remain higher than prewar levels for some time, Europe’s policy emphasis must shift rapidly from price-suppressing measures to income relief targeted to the vulnerable.” Read the full article   The Scramble for Energy—F&D December 2022 Our latest edition of F&D Magazine focuses on what geopolitical tensions mean for the clean transition. Authors include: Fatih Birol, Daniel Yergin, Ricardo Hausmann, Ted Nordhaus, Thijs Van de Graaf, Andrea Pescatori, Jeromin Zettelmeyer, Oya Celasun, Jason Bordoff, Edward Glaeser, Ratna Sahay, and many more. Want to get a print copy delivered to your home or office? Click here to subscribe.

Empowering Women “There is simply no way an economy can prosper without including all its people, both men and women,” IMF Managing Director Kristalina Georgieva said in a virtual discussion on empowering women in the global economy. Moderated by Lord Mark Malloch-Brown of the Open Society Foundations, other speakers included Melinda French Gates, Nigeria’s finance minister Zainab Ahmed, and Sima Sami Bahous of UN Women.

Ted Nordhaus on Nuclear Ted Nordhaus of the Breakthrough Institute discusses the benefits of nuclear energy in a new podcast. After decades of being shrouded in suspicion and controversy, nuclear energy is emerging as a viable clean alternative to oil and gas. The war in Ukraine has turned post-pandemic energy shortages into a full-blown energy crisis and nuclear power plants across Europe that were destined to close will continue to operate.

Green Transition and US Jobs A new Country Focus article looks at how the green transition will impact US jobs. While labor market transitions can be difficult for workers, US labor markets have responded flexibly in the past to transitions from polluting industries, without major disruptions to employment or average workers’ pay. Supporting affected workers through transfers, tax breaks, and training would ease the shift in the labor force.

Ask an Economist: Interest Rates What are interest rates and how do they impact the economy? Why do central banks increase interest rates and how do rising interest rates affect inflation? We answer these questions in our newest episode of Ask an Economist.

WEEKLY ROUND-UP 01. IMF’s Capacity Development Strategy Since the last review of the IMF’s capacity development strategy, countries are facing new challenges related to macroeconomics, as well as areas such as climate change, digital money, inclusion, and gender. The pandemic has also accelerated innovations to technical assistance and training delivery. The concept note for the 2023 Review Of The Fund’s Capacity Development Strategy centers on enhancing the strategic and prioritization framework; ensuring that the size, composition, and funding of capacity development is in line with the proposed framework; modernizing capacity development delivery; and assessing the effectiveness and impact of capacity development.  02. Post-Pandemic Inflation A recent IMF staff paper disentangles the confluence of contributing factors to the post-pandemic rise in consumer price inflation, covering 30 European countries over the period 2002-22. It finds that while global factors continue to shape inflation throughout Europe, country-specific factors, including monetary and fiscal policy responses to the crisis, have also gained greater prominence in determining consumer price inflation during the pandemic period. Coupled with increasing persistence in inflation, these structural shifts call for a significant and extended period of monetary tightening and fiscal realignment. 03. Economic Scarring The magnitude of economic scarring depends on the nature of the shock, economic activity, and pre-crisis conditions, according to a recent IMF staff paper. It documents medium-to-long term output losses following large crises for 192 countries between 1970 and 2015. The paper also provides a thorough review of potential channels that can lead to scarring and presents novel empirical evidence on the significance of supply-side channels using cross-country sectoral-level data. It also discusses policy implications. 04. Climate Policy and Economic Performance A new IMF staff paper compares the economic performance of alternative climate policies along multiple dimensions, including macroeconomic outcomes, energy prices, and trade competitiveness. Carbon pricing which keeps the aggregate cost lower and preserves better the overall competitiveness than across-the-board regulation is the first-best policy, especially in energy intensive and trade exposed industries. Regulations and feebates are good alternatives in the power sector. Feed-in subsidies, if used alone, are not cost effective. 05. Crypto Assets Regulation Recent disruption in many parts of the crypto asset market underscore the need for regulatory authorities to move quickly to manage the risks that crypto assets generate. Last week, IMF Financial Counsellor Tobias Adrian led a panel discussion that reacted to the latest market developments and explored policy recommendations for regulating crypto assets. They discussed strengthening financial regulation in this area, and developing global standards that can be implemented consistently by national regulatory authorities.

Nick Owen Editor IMF Weekend Read nowen@IMF.org   Thank you again very much for your interest in the Weekend Read! Be sure to let us know what issues and trends we should have on our radar.