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In this public lecture, Petia Topalova and Zsoka Koczan will present findings from the latest World Economic Outlook published by the International Monetary Fund.
The first topic is on recent wage dynamics in advanced economies. Close to a decade after the Great Recession, nominal wage growth in most advanced economies remains markedly lower than it was before the recession. This is the case even in countries where unemployment rates are now at, or even below, their averages in the years leading up to the recession. The authors find that the bulk of this slowdown can be explained by labour market slack (both headline unemployment and under utilisation of labour in the form of involuntary part-time employment), inflation expectations, and trend productivity growth. Even in economies where measured slack appears low, involuntary part-time employment continues to weigh on wage growth. Common factors—beyond the common components of slack, productivity, and price inflation—have also exerted downward pressure on wages in recent years, suggesting that the synchronised nature of excess capacity across countries might have amplified its effects. Overall the authors conclude that the wage growth is likely to remain subdued until involuntary part-time employment diminishes meaningfully or trend productivity growth picks up.
The second topic is on the effects of weather shocks on economic activity. Global temperatures have increased at an unprecedented pace in the past 40 years, and significant further warming could occur depending on our ability to restrain greenhouse gas emissions. The authors find that increases in temperature have uneven macroeconomic effects, with adverse consequences concentrated in countries with relatively hot climates, such as most low-income countries. In these countries, a rise in temperature lowers per capita output, in both the short and medium term, by reducing agricultural output, suppressing the productivity of workers exposed to heat, slowing investment, and damaging health. To some extent, sound domestic policies and development, in general, alongside investment in specific adaptation strategies could help reduce the adverse consequences of weather shocks. But given the constraints faced by low-income countries, the international community must play a key role in supporting these countries’ efforts to cope with climate change, a global threat to which they have contributed little. And while the analysis of the topic focuses on the impact of global warming in low-income countries, most countries will increasingly feel direct negative effects from unmitigated climate change through warming above optimal levels in currently cooler countries, more frequent natural disasters, rising sea levels, loss of biodiversity and adverse spillovers from vulnerable countries. Going forward, only continued international cooperation and a concerted effort to stem the man-made causes of global warming can limit the long-term risks of climate change.
Petia Topalova is Deputy Division Chief at the Research Department of the International Monetary Fund (IMF). Prior to that, she worked in the European, and Asia and Pacific Department of the IMF, and was an Adjunct Lecturer at the Harvard Kennedy School of Government. She holds a PhD in Economics from MIT. Her research interests are in the areas of economic development and international trade.
Zsoka Koczan is an economist in the World Economic Studies Division of the IMF’s Research Department. Previously, she worked in the IMF’s European Department. Prior to joining the IMF in 2013, she worked at the European Bank for Reconstruction and Development. Her research interests include applied microeconomics, inequality and migration. Ms Koczan holds a PhD from the University of Cambridge.