Working Paper: NBER ID: w15404
Authors: Ravi Jagannathan; Mudit Kapoor; Ernst Schaumburg
Abstract: Globalization has made it possible for labor in developing countries to augment labor in the developed world, without having to relocate, in ways not thought possible only a few decades ago. We argue that this large increase in the developed world's effective labor supply, triggered by geo-political events and technological innovations, coupled with the inability of existing institutions in the US and developing nations themselves to cope with this shock set the stage for the great recession. The financial crisis in the US was but the first acute symptom.
Keywords: Great Recession; Financial Crisis; Globalization; Labor Supply Shock; China
JEL Codes: E00; E2; E3; G00; G01; G2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| globalization of labor (F66) | increase in effective labor supply (J29) |
| increase in effective labor supply (J29) | downward pressure on wages (F66) |
| downward pressure on wages (F66) | economic adjustments (F32) |
| increase in labor supply (J20) | financial crisis (G01) |
| inability of U.S. financial institutions to adapt (F65) | exacerbation of financial crisis (F65) |
| influx of cheap credit (F65) | housing bubble (R31) |
| housing bubble (R31) | excessive household consumption (D10) |
| excessive household consumption (D10) | cycle of borrowing against inflated home values (G51) |
| cycle of borrowing against inflated home values (G51) | financial crisis (G01) |