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Friday, October 30, 2020
The Seattle City Council approved a minimum pay standard for Uber and Lyft drivers on Tuesday, becoming the second city in the country to do so.Under the law, effective in January, ride-hailing companies must pay a sum roughly equivalent, after expenses, to the city’s $16 minimum hourly wage for businesses with more than 500 employees.“The pandemic has exposed the fault lines in our systems of worker protections, leaving many frontline workers like gig workers without a safety net,” Mayor Jenny Durkan said in a statement. Seattle’s law, passed in a 9-to-0 vote, is part of a wave of attempts by cities and states to regulate gig-economy transportation services. It is modeled on a measure that New York City passed in 2018. Last year, California approved legislation effectively requiring Uber and Lyft to classify drivers as employees rather than independent contractors, which would assure them of protections like a minimum wage, overtime pay, workers’ compensation and unemployment insurance. The companies are backing an initiative on the November ballot that would exempt their drivers from the California law.Uber and Lyft have received more favorable treatment from federal regulators. Last week, the Labor Department proposed a rule that would probably classify their drivers
THE IMF’S latest forecasts, released on October 13th, spell out just how long the economic harm from covid-19 will last. America’s gdp will return to its 2019 level only in 2022; Italy’s, in 2025. The fund reckons that in many places output will stay well below its pre-pandemic trend, as labour and capital are only slowly reallocated from shrinking industries towards thriving ones. Last October the fund expected India’s economy to grow by more than 40% by 2024; now it expects half that. Editor’s note: Some of our covid-19 coverage is free for readers of The Economist Today, our daily newsletter. For more stories and our pandemic tracker, see our hub This article appeared in the Finance & economics section of the print edition under the headline "The IMF’s new forecasts"
EARLY IN SEPTEMBER Evergrande, China’s biggest home-builder, announced the kind of sale more commonly seen in clothing stores: “30% off all properties, one month only!” Some debated whether it was a gimmick or a genuine discount. But its motivation was clear. Deep in debt, Evergrande needed cash—and quickly. Events since then have highlighted the urgency, and also raised the question of whether its struggles threaten the wider economy. Evergrande, after all, has more debt—nearly $120bn—than any other non-financial listed company in China. Having built as many as 600,000 homes annually, it has amassed a debt load 56 times bigger than a decade ago. And it has strayed far from its core business, founding a colossal football academy, a bottled-water brand (which it later sold) and an electric-car company. On September 24th a letter spread online suggesting that its giant edifice was shaky. Written on Evergrande stationery, it warned of a cash crunch and appealed to the government of Guangdong, its home province, to push through approval of a backdoor-listing plan. According to a previous agreement, Evergrande would owe investors 130bn yuan ($19bn) if its subsidiary failed to list on the Shenzhen stock exchange, where it would obtain a higher
GOVERNMENTS IN MANY poor countries have faced a sickening choice this year, between spending to support their populations through the covid-19 crisis and paying creditors. On October 14th finance ministers of the G20 group of countries offered a temporary salve for 73 of the world’s neediest countries, by saying they would extend their Debt Service Suspension Initiative (DSSI) to halt debt-service payments until July 2021. That should free up funds to fight the pandemic (see chart). But a lasting solution will take more dramatic action. Public debt in poor countries rose from 29% of GDP in 2012 to 43% in 2019, according to the IMF, and is expected to jump to 49% this year. Collapsing tax revenues and swollen deficits make it harder to pay the bills and give foreign investors the jitters. According to data from the World Bank and the three largest credit-rating agencies, at least 33 of the DSSI-eligible countries were either close to or in debt distress—ie, struggling to meet their repayment obligations. The 73 countries eligible for the DSSI were due to spend over $31bn servicing debt between May and December. About half of this was owed by the 33 countries under most fiscal
WHEN SET against the grave threat posed by climate change, the green policies favoured by economists can seem convoluted. Carbon prices, beloved of wonks, require governments to estimate the social cost of carbon emissions, a nebulous concept. Green subsidies put politicians in the position of picking promising innovators and praying that bets with taxpayers’ money pay off. Faced with these fiddly alternatives, you might ask, would simply banning the offending technologies be so bad? In fact a growing number of governments are bowing to this logic. More than a dozen countries say they will prohibit sales of petrol-fuelled cars by a certain date. On September 23rd Gavin Newsom, California’s governor, pledged to end sales of non-electric cars by 2035. Such bans may look like window-dressing, and that could yet in some instances prove to be the case. But in the right circumstances, they can be both effective and efficient at cutting carbon. It is easy to see why politicians are attracted to prospective bans. They sound tough and neither impose immediate hardship on consumers, as a carbon price would, nor drain the treasury, as subsidies do. It is just as easy to see why economists might disapprove. Carbon prices
In a normal time, a month in which employers added 661,000 jobs would represent an absolute blockbuster — the kind of thing an incumbent president could happily promote as evidence his policies were working.These are, of course, not normal times. And the 661,000 positions employers added to their payrolls in September are paltry relative to the 22 million positions slashed in March and April, and relative to the seven-figure monthly job growth experienced from May through August.If the rate of September job creation outlined by the Labor Department on Friday were to be sustained indefinitely, it would take another 17 months for the economy be back to its pre-pandemic levels of employment. That milestone would be reached in only eight months at August’s rate of job creation.To make sense of where the economy stands on the verge of the election, it’s essential to keep a clear view of the distinction between three concepts: the level at which the economy is functioning, how fast it is improving, and whether that speed is accelerating or decelerating. And in a shambolic year, it’s not totally clear which of these concepts will matter most to voters, or how heavily the state of the economy
NO SOPHISTICATED ANALYSIS is needed to show that China is in better economic shape than most other countries these days. Just look at its bustling shopping malls, its jammed roads in rush hour and its mobbed tourist sites during holidays. But if the crowd scenes suffice to affirm that China is doing well, a little more work is needed to address the question: exactly how well? As is often the case with Chinese data, the answer is controversial. The national statistics bureau will report third-quarter GDP on October 19th. Analysts expect growth of about 5% compared with a year earlier, a strong recovery from the depths of the coronavirus slowdown, and all the more stunning when much of the world is mired in recession. Yet some believe the official growth data have been too rosy this year, not least because China’s pandemic lockdown in the first quarter was among the world’s most restrictive. Thankfully, the mysteries are not unfathomable. Research published in recent weeks sheds some light on what is really going on. Doubts about China’s data are not new: it is probably fair to say that few serious economists trust its exact growth figures. Instead, there are two
MANY OF THE big market-manipulation scandals over the past decade have much in common: huge fines for the investment banks, criminal charges for the traders and an embarrassing paper trail revealing precisely what bank employees got up to. Interest-rate traders who manipulated the London Interbank Offered Rate (LIBOR) messaged each other with pleas to put their fixes in low. Foreign-exchange traders infamously called a chat room in which they discussed rigging exchange rates “the cartel”. The case against JPMorgan Chase for manipulating precious-metals and Treasury markets has many of the usual features. On September 29th it admitted to wrongdoing in relation to the actions of employees who, authorities claim, fraudulently rigged markets tens of thousands of times in 2008-16. The bank agreed to pay $920m to settle various probes by regulators and law enforcement; this includes a $436.4m fine, $311.7m in restitution to parties harmed by the practices and $172m in disgorgement (ie, paying back unlawfully earned profits). Some of the traders involved face criminal charges. If convicted, they are likely to spend time in jail. The traders are alleged to have used “spoofing”, a ruse where a marketmaker seeking to buy or sell an asset, like gold or
Six months after the coronavirus pandemic tore a hole in the U.S. economy, the once-promising recovery is stalling, leaving millions out of work, and threatening to push millions more — particularly women — out of the labor force entirely.The latest evidence came Friday, when the Labor Department reported that employers added 661,000 jobs in September, far fewer than forecasters expected.It was the third straight month of slowing job growth, a worrying trend given the scale of the challenge ahead. The economy has nearly 11 million fewer jobs than it did before the pandemic, a bigger loss than the 8.7 million at the depth of the recession a decade ago.Economists said the report underscored the need for more federal help. “It’s disturbing that we’re seeing such a dramatic slowdown in employment gains as we head into the fall,” said Diane Swonk, chief economist for the accounting firm Grant Thornton. “This is a red flag. We need aid now.”The September slowdown was partly a result of public-sector job losses, particularly in school districts, where payrolls fell by more than 200,000. Economists said some of those jobs would come back if more schools opened for in-person instruction. But further cuts could be looming
WITH THE economy battered by coronavirus, risk capital has dried up in India. In the past six months assets in credit-focused mutual funds, which play a crucial role as buyers forAA- to A-rated bonds, have declined from $13bn to $4bn. Lending by commercial banks, burdened by dud loans even before the pandemic, has withered. Thankfully, for some companies this domestic dry spell is being offset by a stream of foreign capital. Reliance, a telecoms and energy giant, is a glitzy example of overseas equity investment made on the premise of growth. But a quieter wave of capital is seeking out different sorts of assets, serving to stabilise local companies while offering foreign investors high returns. As a result, many of the world’s largest insurers, private-equity (PE) firms and pension and sovereign-wealth funds have become influential. Such inflows have been a boon for India’s financial institutions. Edelweiss, a big lender and asset manager, had already been suffering after the collapse of one non-bank, IL&FS, tightened domestic credit for the others. Covid-19 only made matters worse. But over the summer Edelweiss has struck a series of deals, selling, for instance, its corporate loans to Singaporean and American asset managers, and a
IN THE WEEKS following the stockmarket crash in October 1987, the investment committee of Yale University’s endowment fund convened two extraordinary meetings. Just after the crash its newish chief investment officer, David Swensen, had bought up stocks (which had become much cheaper) paid for by sales of bonds. Though in line with the fund’s agreed policy, this rebalancing appeared rash in the context of the market gloom—hence the meetings. One committee member said there would be “hell to pay” if Yale got it wrong. But the original decision stood. And it paid off handsomely. A lot of investors say they have a long horizon. A new study by David Chambers, Elroy Dimson and Charikleia Kaffe, of Cambridge University’s Judge Business School, finds that America’s big endowment funds have lived up to the claim.* They have been pioneers in allocating to riskier assets, most notably to “alternatives” such as private equity. When others flee risk, they have embraced it. They are supposed to see the farthest, after all: their goal is to meet the needs of beneficiaries for generations. Other investors seek to emulate the success of Yale and the other Ivy League endowments. Every other pension plan says it
LIKE OTHER crises before it, covid-19 seems destined to accentuate troublesome features of the world economy. Take global imbalances. Though these were briefly suppressed when the pandemic first struck, they have now rebounded. America recorded its largest trade deficit in 14 years in August, despite having gone from being a big importer of oil to a net exporter in that time. Its goods deficit is neatly matched by a resurgent surplus in China. Temporary factors, such as a surge in China’s exports of personal-protective equipment, are partly to blame. But there is reason to worry that these fault lines will persist, adding a dangerous element to an already fraught global policy environment. Global imbalances reached a modern peak just before the onset of the financial crisis of 2007-09, when the absolute sum of countries’ current-account surpluses and deficits amounted to over 5% of world GDP. Current-account gaps were pushed wider in part by what economists called the “global saving glut”, the result of soaring oil prices, and precautionary saving by emerging-economy governments prepared for sudden reversals in global risk appetites. Gaps eased in the decade after the crisis as oil prices fell and China edged towards rebalancing its economy.