GED Under the Radar – February Edition

Today, we are happy to bring you a brand new segment on the ged-project blog. In it, each month, the GED Team will present to you those economic stories, which we found most interesting that month but felt received less popular media attention than they actually deserved. These stories can come from all over the world. They can be relevant and important for the global economic system as a whole or just affect a select group of few, they can be serious or they can be humorous. In any case they will be interesting. This is “GED Under the Radar”!

February’s Radar Stories in Short:

• Denmark’s Almost Full Employment
• Universal Basic Income – An Answer to India’s Poverty Problem?
• Belarus – A Crisis in the Making?
• French Elections 2017: Agriculture in the Spotlight

Denmark’s Almost Full Employment

Whereas other European economies are still struggling with high unemployment rates, recovery from the crisis continues in the north: Denmark has seen a strong increase in employment and now, as the upswing continues, faces an era of almost full employment. As promising as this may seem at times when countries like Spain and Greece still struggle to bring their unemployment rates below 20%, employers in Denmark, a country of 5.6 million people, already face other challenges: As in many industrial and technically advanced economies which produce a vast array of products, Danish companies struggle to recruit enough employees in order to fill their vacancies with specialists from areas such as IT, computing and engineering; professions like carpenters, electricians and mechanics are similarly in high demand. Hence, Danish firms face an array of challenges: They cannot recruit enough specialists according to their production and growth goals, and as demand for skilled workers rises, so do the wages needed to attract them, as well as, the competition to hire – and then hold – qualified applicants.

This comes at a point where the recovery of the Danish economy is still on an upswing, which makes the mounting capacity pressures in the labor market even clearer. Unemployment in Denmark is currently as low as 4.2 percent, almost as low as it can go without provoking inflation. The labor shortage is broad-based: Employment possibilities (and consequently demand) in the private sector have grown broadly across industries, but especially strong within sectors such as building and construction, business services as well as trade and transport. This happened despite the fact that at the same time, the Danish central bank slightly decreased its forecasts of GDP growth to 1.4 percent in 2017 (previously 1.5 percent) and to 1.5 percent in 2018 (1.8 percent) respectively. The decrease in estimates is mainly due to a weaker export growth.

A shortage of workers poses a serious challenge for the economy, as labor resources are needed to support sustainable growth. Both the Danish government and central bank will surely keep a close eye on the situation. Potential matters of concern, as forwarded by the central bank, could be the question of how to bring people currently outside the labor force into the labor market or those currently in labor force to retire later. The Danish government is already testing measures to motivate groups outside of the labor market, such as early retirees, recipients of disability pensions or students to (re-)enter the workforce. Businesses themselves try to counter the issue by lobbying for an intensified teaching of technology and vocational skills in schools in order to prepare for employment in a high-tech world.

Universal Basic Income – An Answer to India’s Poverty Problem?

The idea of a Universal Basic Income, UBI, has been making its rounds in the heads of economists and statesmen worldwide for quite some time now. Finland just recently started a two-year test trial, providing a group of 2000 unemployed Fins with a monthly basic income of 560 Euros. The city of Oakland, California is testing a similar pilot. But now renewed interest in the subject comes from a previously unheard-of direction and on a whole new scale as India is toying with the idea of an India-wide UBI in an attempt to drastically reduce the Nation’s number one problem: poverty.

On January 31^st, India’s government released their annual Economic Survey, a close look at the overall state of India’s economy and the various trends and challenges it faces. As part of this report, a whole chapter is dedicated to a proposed Indian UBI. The report notes that while India’s poverty rate has dropped significantly from the once 70 percent it held in 1947 when India gained its independence, a rate of 22 percent in 2011-12 (the last year with valid data), would still mean that literally hundreds of millions of people in India were struggling for economic survival. The report quotes: “A Universal Basic Income may simply be the fastest way of reducing poverty.” It goes on to add that India might actually be the ideal country for a UBI as the country’s circumstances would allow the UBI to “…be pegged at relatively low levels of income but still yield immense welfare gains.”

Implications of the UBI and its effect on poverty and vulnerability

While the report also deals with the possible downsides of a UBI, such as a possibly reduced incentive to work, it ultimately comes to the conclusion that in the case of India the advantages of a UBI would far outweigh its potential risks. More concretely, the report proposes a UBI of 7620 Rupees per year per person, which would translate to about 108 Euros (113 USD) under current exchange rates. The fiscal costs for this, according to an arguably simplified calculation of the report, would be around 4.9 % of India’s GDP. Ultimately, it remains to be seen how far the Indian government – and public – are willing to take this proposal. Given the huge population of nearly 1.3 billion and the unwillingness of large parts of that population to give even more money to those who are already well off, the feasibility of the U in UBI will be questionable. Still, even a compressed form of the government reports’ proposal would spell big changes for India’s economy and present the world with a new basic income experiment on a scale economists hadn’t dared to dream off before.

Belarus: A Crisis in the Making?

Relations between Russia and Belarus are going steeply downhill – a tendency that has accelerated in January and February. A first sign for this was that the Belarusian President Lukashenka did not participate in the December summit meeting of the heads of state of the countries forming the Eurasian Economic Union. This came in conjunction with speculations that Belarus might be leaving the EEU altogether.

A few weeks later, Belarus decided to allow visa free travel from 80 countries (including the US and EU member states) for up to five days. This decision was followed by Russia re-introducing border controls and checkpoints, curtailing the free movement of people and goods that had been in place for 22 years.

A few days later, President Lukashenka met President Putin in Moscow, to discuss the border controls and the long-simmering subject of Russian duty free oil deliveries to Belarus. When it became clear, that Russia was aiming to reduce the duty free quota of oil, Lukashenka held a furious press meeting – which lasted for 7h20min – and in which he lambasted Russia about wishing to “hold Belarus by the throat” – and expressed a wish for closer cooperation with the EU and the US.

But tensions are not only mounting in external relations. Internally, the idea to introduce a “parasite tax” – a tax to be paid by long-term unemployed – did not go down well in a country marked by three years of recession. Mass protests, so far something very unusual in Belarus, have started in Minsk and other cities.

How these rising internal and external tensions affect Belarus’ political and economic development remains to be seen – the next weeks or months could be crucial for the future of this country at a geopolitical crossroads between the EU and Russia.

French Elections 2017: Agriculture in the Spotlight

The “Salon de l’Agriculture”, the most important fair of the French agricultural sector taking place from 25 February until 5 March 2017, is a fixed annual must-attend in the calendar of French politics. With the President opening the fair and politicians munching away on sausages, sipping a mouthful of exquisite wine or tasting delicious locally produced cheese while patting cows – what first appears to be a culinary feast is a meet and greet between the who’s who in French politics and both, the big as well as the smaller French farmers and producers. Intensively followed by French media and hence also by the French public, the Salon is an important date on many political calendars.

This year’s Salon however takes place at a time which could not be more decisive for the future of French politics. Presidential elections in France are approaching fast, with the first round to be held on April 23^rd, 2017 and the political landscape already heated-up. As candidates find themselves in the middle of their rally for electoral approval, the Salon de l’Agriculture is an important stage for them not to be missed. On the one hand because of the attention paid by the public and the media, on the other hand because, even though it has lost some of its weight, the important role of “rural France” in French politics should not be underestimated.

In this context, the big question is who will be able to convince the many voters in France’s rural regions. Many fear the candidate of the Front National, Marine Le Pen, will win a large share of the votes cast in areas such as the north, the north-east as well as the south-east of the country, all regions which are largely hit by structural change. Amongst French farmers, the far-right candidate could even cast an estimated 35 percent of agricultural votes, according to a recent poll by French research institute Cevipof. This amplified position of the far-right among farmers is new and marks a sharp increase compared to the 20 percent of their votes Marine Le Pen could win during the presidential elections in 2012. Cevipof attributes this a number of factors, inter alia the permanent crisis of the French agricultural sector, a high skepticism towards the European Union among French farmers and their growing resentment against the traditional parties of French socialists and conservatives. These are all sentiments from which many fear the far-right candidate will profit during the actual elections.

The traditional vote haven for French farmers, the French conservatives, meanwhile are widely distanced in the Cevipof poll, as their candidate François Fillon only scores 20 percent among this voter group – a score equally accorded by the poll to the candidate of En Marche, Emmanuel Macron. Additionally, the poll marks a sharp decrease in the general will of French farmers to vote: More than half of them (53 percent) are not certain to even cast their vote at all, compared to a traditional participation rate of 80 percent.