Show Notes
In 1993, the North American Free Trade Agreement (NAFTA) was passed with bipartisan support and near universal endorsement by economists. In hindsight, the economic costs and political consequences were far greater than many contemporary observers would have imagined. In a paper in the American Economic Review, authors Jiwon Choi, Ilyana Kuziemko, Ebonya Washington, and Gavin Wright found that US counties most exposed to NAFTA and Mexican import competition saw their total employment drop by roughly 6 percent compared to those with little exposure to the trade deal. However, workers in these communities didn't respond by moving away to find better opportunities, and many, feeling betrayed by the Democratic party, embraced the Republican party instead. Choi and Wright recently spoke with Tyler Smith about the economic and political history of NAFTA and what economists have learned since its passage.
More from AEA Research Highlights
In 2024, the Federal Trade Commission (FTC) issued a rule banning most noncompete agreements nationwide, arguing that greater worker mobility would foster new business creation and raise workers' earnings. The rule was later vacated, but it brought renewed attention to a longstanding debate over the economic effects of noncompetes. Supporters of noncompete agreements contend that these restrictions encourage firms to invest in new ideas by preventing employees from taking proprietary knowledge to competitors. In a paper in the American Economic Journal: Applied Economics, authors Kate Reinmuth and Emma Rockall examine the effect of noncompetes on innovation, using 26 changes in state-level noncompete enforceability between 1991 and 2016. They find that an average-sized increase in enforceability reduced patenting by about 14 percent after five years, with larger declines among the most novel patents and venture-backed firms. Reinmuth and Rockall recently spoke with Tyler Smith about the arguments for and against noncompetes, how they isolated the causal effect of enforceability on innovation, and what their findings imply for policymakers.
Intimate partner violence, or IPV, refers to physical, sexual, or emotional abuse and controlling behavior by a current or former partner. Women bear a disproportionate share of the burden of IPV worldwide—roughly one in three women experience IPV in their lifetimes—and low- and middle-income countries have a greater occurrence of IPV, with larger costs as a percentage of GDP. In a paper in the Journal of Economic Literature, authors Manisha Shah and Lydia Barski surveyed the economic research on IPV and identified key findings. Shah recently spoke with Tyler Smith about how to measure IPV, the factors that drive individuals to perpetrate and enter into IPV, and the policies that are effective in reducing it.
Most firms rely on managers to spot talented workers and to encourage them to move into bigger roles within the company. But managers are judged on how their own teams perform, giving them an incentive to hold on to their best people. In a paper in the American Economic Review, economist Ingrid Haegele provides the first empirical evidence that talent hoarding is prevalent and costly. Drawing on personnel records and surveys from a large European manufacturer with more than 200,000 employees, she finds that 75 percent of managers acknowledge hoarding. She says that the workers held back are disproportionately high-performing, with the effect falling hardest on women. Haegele recently spoke with Tyler Smith about how she measured talent hoarding, what it costs workers, and what firms might do about it.
In response to Russia's 2022 invasion of Ukraine, the G7 imposed a price cap of $60 per barrel on all Russian oil carried by tankers owned, insured, or serviced by Western companies. Many analysts expected the policy to backfire, with some warning that oil could reach $380 if Russia retaliated by cutting production. In a paper in the American Economic Review, authors Simon Johnson, Lukasz Rachel, and Catherine Wolfram argue that tightly enforced caps can actually raise oil output and push world prices down when factors like market power, uncertainty, and financial constraints are accounted for. Rachel and Wolfram recently spoke with Tyler Smith about why the textbook intuition on price caps fails in Russia's case and how their framework might be used to set caps in the future.
In the fifteen years following the end of World War II, Western Europe's capital account surpluses were not sufficient to finance its trade deficit with the United States. Charles Kindleberger of MIT, who helped assemble the Marshall Plan, defined this gap as the "dollar shortage" and argued that it was a structural problem rooted in Europe's lagging productivity, one that could only be fixed by sustained US lending. Milton Friedman disagreed, treating the shortage as a simple consequence of overvalued fixed exchange rates that floating currencies would correct. The argument continued through scores of books and articles written by many other economists into the late 1950s, until Europe's productivity caught up, and the debate faded. In a paper in the Journal of Economic Perspectives, authors Harris Dellas and George S. Tavlas revisit the controversy and explain why it still matters. They find that Kindleberger anticipated much of what is now called the intertemporal approach to the current account, and they trace how two recent episodes of dollar shortages echo and depart from the original. Dellas and Tavlas recently spoke with Tyler Smith about the paper.