 Thank you Claire and good morning and it's a pleasure to be back in the physical format here in Cintra. Now as already mentioned there's also an online audience. So later on after we've had the initial presentation and discussion there will be of course always the interesting component of having questions and comments from the floor, from the actual floor here in the room and also with all the contributions online. So I encourage you to already start thinking about the questions or comments you want to make. Now the team in designing the program always has the conundrum which is of course the program is designed months in advance of this event, papers have to be commissioned and then the guess work is okay what will be interesting questions, interesting topics by June 2022 and I think in this first session this morning I think a very good topic has been picked and maybe what's interesting is both of these phrases are everyday issues at the ECB, globalization and labour markets and this session let's see how it goes but in bringing these two concepts together is really the goal this morning and we have the mix. We have Richard Baldwin who his career has been best known for his contributions in international trade of course that's a very broad concept and because of the particular intersection point here at labour markets the discussion Barbara Petrangelo is one of Europe's leading labour economists. She directs the labour economics program at the CPO as well as her chair at Oxford. So I think it should be a very interesting session. I should say Richard in addition to his many academic direct personal contributions and his contributions to the CPO I'm sure when they look back decades from now the writer will say editor-in-chief of VoxEU. So VoxEU is part now of our daily lives and now for maybe quite some time actually but it's really been such a transformational development for European economics to have that as a daily site for commentaries and advertising for important work. So with that let me hand over to Richard to make his presentation. Thank you. Start my watch there we go. When I was a graduate student at MIT they told me every talk has to have three elements to start with. You have to start with a thanks and an apology and since it was the United States you also had to have a joke. So let me start with my thanks. My thanks to the organizers for giving me the opportunity to share my ideas with this very august audience, very important, quite different than my usual audience. I'm feeling a little nervous because this audience is a bit outside my usual comfort zone so maybe I won't be thanking the organizers after I crash and burn in my presentation today but we'll see. Now the apology is that my paper has been late and the PowerPoint presentation has been late so I'm especially apologizing to Barbara who's had to struggle with the discussion for an unwritten paper. Now since we're in Europe rather than the US there won't be any joke although maybe at the end of my presentation some of you will figure out that the presentation was my joke. Okay did I lower the expectations sufficiently here? Okay good good. Now let me start with the basic points. Globalization affects the functioning of the macroeconomy. The functioning of the macroeconomy affects monetary policy and globalization is changing. It is therefore a real possibility that the functioning of the macroeconomy will change. Now when I talk about change of globalization think services and less goods. Over the last 25 years globalization and automation of the goods sector especially manufacturing has completely transformed how our economies work. Some people say that's why the Phillips curve flattened which has made policy making difficult. Some people say that's why there was so much deflation. Now going forward the globalization of the goods sector which was so important for 25 years will diminish. Globalization in the goods sector is declining but globalization of the service sector is rising and rather rapidly and here's why that matters. The service sector is far larger and far more important to the macroeconomy than the goods sector ever was. Three quarters of all workers work in the service sector. Two thirds of the GDP is produced in the service sector. But services are different in important ways and that's what I'd like to talk about but as it turns out there's not enough data to have that discussion. So at the end of it all my talk should be a sales pitch for a research project that I hope the ECB will do. There we go. So that's my basic points. Mr. Moderator should we just go to Q&A or discussion? No? As I want. So I have some slides so I'll go with those now. Globotics we have to talk about. Globotics is an ugly but hopefully memorable word that I invented to try and drive home the point that globalization and robotics are being driven forward by digital technology at the same time. But this time it's affecting white collar and professional jobs not just manufacturing and farm jobs and it's happening faster than many think and in ways few expect. So that's the point of this. It's coming to the service sector both automation and globalization to the service sector. So I'm going to talk about globalization is changing. I'm going to talk about services are important but difference. And I'm going to talk about robotics service and HICP developments. Globalization is changing. So here's a chart that many of you have seen before goods trade peaked as the offshoring expansion phase ended. So this is world goods trade imports and exports as a percent of GDP. And I go back to 1960 and you see from 1960 up to the early 90s we had old fashioned globalization driven forward by lowering trade costs and growing economies both of which mechanically lead to a rise in the trade to GDP ratio. In the early 1990s the ICT revolution completely changed the way globalization worked because it made it possible to spatially unbundle stages of production in manufacturing and it made it possible for G7 firms to offshore those factories to willow wage countries. And most importantly they off showed their know how as well as the factories. So that offshoring triggered rapid industrialization in a handful of developing countries which led to very quick income which then triggered the commodity super cycle. Now most of the low hanging fruit in the offshoring revolution has been picked. So it's sort of come to the boils come off. And for a variety of reasons we'll talk about trade to GDP in goods is actually falling and has been for quite a while. So that global peak is for real but it's somewhat deceptive. We need to be aware of false peaks and the lazy narrative that ICT started it. The global financial crisis killed it. That's the lazy narrative and it's wrong. China for example peaked well before 2008. US peaked in 2011. Japan peaked in 2014. And the EU which accounts for 30% of global trade in goods never really peaked. It's kind of stagnated. So since we're at the ECB let's look a little bit closer at the EU's peakers and non-peakers. So what I do with this graph is I put the growth between 2008 and 2020 on the vertical axis and the growth from 1990 to 2008 on the horizontal axis. So the countries that peaked are in the lower right corner because they grew from 90 to 2008 and they fell between 2008 and 2020. Now you can see that includes some very serious countries like Germany and France, the two largest trading countries. But if you go on the non-peakers you see Italy, Spain and Netherlands. So it's a bit of a mixed bag and the EU average, the EU 27 there is just on the borderline. So when you see that first slide it peaks in 2008 and goes down, remember that is not a globally harmonized sudden synchronized movement. So when you start thinking about simplistic explanations as to why globalization died they're almost probably all wrong for a very large number of countries. Now China is key. I guess you've heard that before. In goods China is the largest trading country in the world. And it has a very particular path of this form of globalization. So this is imports and exports of goods over GDP. And you can see China rose very fast because they were on the receiving end of the offshoring revolution. So for a long time they were growing incredibly quickly but importing a huge amount of parts and components. The miracle of China is they created an industrial base and as their industrial base grew they stopped importing the parts and components and now they are normalizing to a usual mega economy. So China does things differently. It's state led capital but what they're doing macro is not unusual. It's actually they're becoming normal. Now what is unusual is on the right chart and that's their engagement with global supply chains. So the green line is what they're buying from global supply chain parts and components and the blue line is what they're selling. China has now become the largest by far supplier of industrial goods worldwide. Every major manufacturing country in the world is heavily dependent on Chinese industrial inputs. So it's an important thing to watch. Now this is all about goods. I want to talk about services because goods is yesterday's story. Services is tomorrow's story. So what I'm doing with this graph here. Let me come over here and bother these people instead of those people. I'm looking at the growth of a large group of services called other commercial services and I've read then also with goods and I've rebased it to 1990 so we can see the effective cumulative globalization focus on the trends and what you will see is and this is not per GDP. This is the absolute level of goods trade and you can see it's rose. There's a little peak down with the global financial crisis but it keeps going but it's kind of petering out service trade. You don't see any slowing down whatsoever potentially an acceleration. Now over here I show what is the ratio of other commercial services to all traded goods and services. So other commercial services is like all services except transportation and travel. So it's like Indian outsourcing whatever everything's in that bucket and you can see from 1990 it went from 90% of global commerce to 20% of global commerce and it's rising. So all of you in this room know what happens when one growth when one time series grows two to three times faster than the other one very soon the dial moves a lot and that's my main message today. Globalization and automation of the future will be about the service sector at least as much as the manufacturing sector so we need to study that more. Okay so this is for the Euro area 19 you see basically the same picture. Now inside the EU we also don't see the diversity none almost nobody in the Euro in the EU is in this peaking phase where it went up and then down. Okay goods peaked services not why and that was the subject of my 2016 book. You didn't think Philip I would come up here and not advertise my book did you. So this is my little theory about globalization. Arbitrage drives globalization and that arbitrage is constrained by three costs. Trade costs for arbitrage and goods. Communication costs arbitrage and know-how and face-to-face costs for arbitrage and labor services. That first phase when it was rising it was all about lowering trade costs. The second phase when the communication costs came down and allowed the offshoring we got this boom in globalization and what I'm saying here is that the digital technology lowering face-to-face cost will change globalization. In particular Digitech is lowering face-to-face costs and allowing services cross-border telemigration. Think about remote work done internationally. Think about work from home when home is abroad. That's what I'm talking about. Direct labor market service arbitrage opened up by digital technology which all of us have been using. And in fact just a little hint on how bad the trade statistics are. Most of you were probably doing international trade when you did your remote work from a different country. That surely was not captured in the trade statistics and therefore a lot of what will go forward will not be captured in the trade statistics. Okay now I want to move on. The future of trade is intermediate services. So there's two messages there. One the future of trade is services not manufacturing but almost all of our mindsets, almost all of our thinking, almost all of our wisdom is based on what happens when the good sector becomes more globalized. And I will argue that globalization in the service sector will work differently. The second message is this is not services as you may think about financial services, medical services, architectural services. It's the intermediate services, the thing that's in the service value chain. So I want to give you four facts and a conclusion or a conjecture. First of all barriers to services in trade are much higher than barriers to services and goods now. Some estimates make them hundreds of times higher, some thousands of times higher. But most barriers to trade intermediate services are technological not policy. There's almost no domestic regulation of who can provide for instance bookkeeping services or screen CVs or make your appointments. Digitech is lowering barriers to intermediate services at an explosive pace and COVID accelerated that by moving us all to the frontier. Fourth, the demand for intermediate services in rich countries is huge. The capacity in emerging markets is huge. Therefore intermediate services in trade will grow much faster than goods in trade for the foreseeable future. And since 2000 it's already been growing two to three times faster. Okay, five facts in a short period of time, 10 minutes. Well I have, okay services are important but different. Now what I want to do here is make the argument that we should pay attention to the fact that globalization and automation are shifting. First of all services in the Euro area are important. On the left side you'll see services accounts for 74% of the jobs. This is in 2019, by the way I should say the President's speech was all about what happened since 2019 with COVID and Ukraine and supply shocks and stuff. I stopped there because it, services did get a little weird after that and I'm really talking about long-term structural things. So that's one of my graphs stop at 19 or 20 on purpose. So three quarters of the jobs, two thirds of the GDP and 44% of the HICP weight is in services. And on the right chart we have trends. So I've rebased it to 2001 to look at the price, at the developments over the last 10 years and you can see the jobs are growing fast. HICP weight is growing fast and the GDP has plateaued. So the share of GDP is somewhat plateaued. Intermediate inputs are more important in service imports than manufactured imports. So all of us have fascinated about global value chains and all the implications of that. Those, that is essentially about trade in intermediate goods. That's what that all is about. But trade in services, the intermediates are more important in services than they are in goods and increasing. As you can see the business service is rising whereas manufacturing is plateaued. Service intermediates are three times more important than manufactured intermediates in the overall economy. So what we have here is the column sectors. These are the inputs from the row sectors and you see service intermediate inputs from the service sector are 32%. Service intermediate inputs into the manufacturing is 24%. But because the service sector is so large, 30% of the gross output of the economy is intermediate services. Now if you go over to manufacturers, it's 5% in services, 25% in manufacturing, but since manufacturing is so small, it's only 11% of the economy. So this is if you will, the demand for intermediate services in rich countries is huge and three times larger than the demand for intermediate goods. It affects every sector, I'll skip over that. Now what I wanna talk about a little bit is automation. Service sector automation is different and to mark that I invented this word in my last book, my 2019 book, white collar robots. To stop us thinking about robots as these physical things that work in auto factories. So computers have acquired new cognitive skills since 2016 due to machine learning. The new skills are automating service sector tasks. Things like robotic process automation, virtual assistants, IBM's Watson, scheduling apps. Just notice that Outlook is starting to read my emails and create appointments in my calendar or suggest them by itself. That's a service sector task that's being automated. They didn't even ask me. But what changed? How is it that computers have changed? And I would argue that it's the programming that changed. There's been a fundamental C change in the way we program computers. So coding computers is like thinking slow, conscious, rational, explicit. Machine learning is like thinking fast coming from the Daniel Kahneman's thinking fast, thinking slow. Machine learning allows computers to do things where our thinking is unconscious, instantaneous, multi-tracked and we have no idea how we're doing it. But by estimating large statistical models we can reproduce that and some of those services are allowing automation of the service sector in ways that was never possible before. It's the same technology that's allowing the globalization. Five, service sector automation is happening at the job or the task level, not the product level. And this is why it's hard to figure out. This is why my paper has no wow number at the end. So service sector automation varies by job. For instance, Frey and Osborne have a famous study which showed which jobs could be automated and which couldn't and it's been reproduced different countries, different things. Service sector globalization or teleworkability varies by job and Dingle and Neumann and a number of other people estimated which jobs were offshoreable and which weren't or teleworkable. By contrast, good sector globalization and automation was at the product level. So if you wanna map automation and globalization in goods into the economy and HICP, it's easy. If you wanna do that for services you have to map something that's affecting occupations into HICP elements, which is difficult. We don't have that mapping and we don't really have the data. Okay, so this is the global robotics quadrant, if you will. Automation and globalization of service sector occupations is happening at the same time and all I've done here with a co-author from Japan is put the offshore ability on the vertical axis, the automated ability on the horizontal axis and put in where each occupation is according to the scores. And you can see general clerical workers with, this is US data, six million workers is up there, both automatable and offshoreable. But if you go down to public health nurses, midwives and nurses, there's six million of them but they're not at all offshoreable and very little automatable. But the point here is this is not an obvious correlation. So if you're thinking automation and globalization look a lot alike, as they did in manufacturing, you're wrong. You have to look at this occupation by occupation and that's why it's hard to map into the function of the macroeconomy because normally we're taking products to the macroeconomy. Okay, now HIPC developments. I have three minutes and 50 seconds left. Global robotics and HICP developments. And again, this is before all the exciting events that all of you spend most of your time dealing with. So take this as kind of relaxation, something that might affect your predecessors and you won't have time to worry about this but maybe you can get your staff to worry about it. This is structural stuff. So service inflation is higher but less volatile over the long run. And there's a very good reason for that. It's called the Balassa-Samuelson effect. So traditionally, productivity and manufacturing is faster than services and services are less traded. So as a consequence, as globalization drags up the wages because of productivity and manufacturing, it drags up the service sector wages and since they're not traded, they don't face a price pressure and since they're very labor intensive, it's felt more intensively. So fast growing economies typically have higher service inflation but it's less volatile because there's none of this food and energy shock stuff that comes. So here's in the Eurozone just to show you that this excess inflation of services versus industrial goods over the last 10 years is very, very common. The average percentage point difference for the Euro area at 19 is 17.5%. And what I've done here is put the size of the economy on the vertical axis and the difference on the horizontal axis and you can see there's a gentle that large economies tend to have less of this excess inflation than small economies and there's also a fast growing element of it but there's some diversity to it. Okay, there's one weird thing about services and that's communication. Its price has been falling like crazy. The other ones have been moving relatively similar so it's nothing to be seen here. In context, this is what the speech was about so I'll skip that. Now what I'd like to end with is the calculation I would have liked to have done when Philip Hartman and Philip Lane asked me to do this paper. I had this idea that I could redo for the 21st century the calculation for the 2020s, the calculations that had been done in the 2000s for the impact of imported deflation because of the China shock and whatever and offset by the commodity. I thought I would just take the service data, project forward what's happening and see what it would do to the inflation. There's a trouble with that. This is how you calculate this thing, calculating the impact of service sector globalization. We would need domestic prices and import prices and it would feed into the HICP inflation index. Now the imported prices would also affect wage formation which would affect domestic prices. The import competition would affect price cost markups and also affect prices and the imported prices would lead to lower cost of inputs therefore also lower domestic prices because of a productivity gain. Now the trouble is there are no import prices for services. Believe it or not, they don't exist. I asked the OECD. The fundamental problem is there's no customs declarations. So the way we get trade prices for the most part is you fill in a customs declaration which has the value of the shipment and the quantity. You divide the value by the quantity you get something like a price out of it. Since you're not declaring quantity for service imports only the values you don't have that price. So there's other ways to do it and a research project might find them but we don't have the price of imported services full stop. Moreover, the categories in which they are put seem to have been randomly drawn by people who did not care about the real economy. If you look at the service classifications it's why did they put that together? You have like services for price line transmissions together with Indian outsourcing of offshore stuff together like that. So we need to have better detail on the flows as well in order to be able to map them into the labor market into the product markets, into the cost of inputs and therefore into the HICP. So I'm suggesting we need a forward-looking work program. We need price data and we need mapping of imported services to domestic sectors and jobs because service sector is being hit at the job level not the sector level and to map the hit on the jobs which vary by occupation. Into something that matters for the function of the market economy we need to map jobs into products. So I'll stop right there. Thank you very much. Thank you Richard. I mean the last point of course is something that every day we have to deal with is how do we think about measurement issues. So the grand concepts like inflation then you start to press on it and then you say very deep questions here but no doubt we'll come back to that in the discussion later on but of course the lead discussant is Barbara and I hand over to you. Thanks very much to the organizers for inviting me to the ECB Forum and thanks to Richard who gave me the opportunity to read a lot of thought-provoking facts and this is really an area to which I am an outsider so I really learned quite a bit of very interesting evidence. So just to recap very briefly the issues that Richard pointed out so we have witnessed massive globalization in goods with the offshoring and global supply chain for goods and this had impacts on employment, inequality and prices and then now we are witnessing the next generation of international trade and the future is going to be in services mostly by digital technology and trade in intermediate services as Richard was describing this has potentially much larger reach because services account for three quarters of GDP every sector in the economy uses intermediate services demanding rich countries is potentially elastic and capacity is potentially huge in emerging markets. So the key question here is really what to expect from globalization in services and what do we need to make progress and what kind of data, what kind of approaches we need to make progress in this area. So I will first offer a sort of labor market perspectives on the impacts of globalization in goods and then see what we can learn what we can extract to understand the impacts of globalization in services. So this picture here is something that probably most of you are familiar with this is the correlation between the import penetration in a number of OECD countries all in manufacturing employment the European Union countries are mostly in the middle of that diagram so the degree of import penetration was sort of intermediate at the sort of right extreme there are the US, the UK, Ireland and Iceland. So there is a clear correlation, negative correlation between import penetration from China and declining manufacturing employment. Now one important point to notice is that the declining manufacturing employment was very heterogeneous across countries given the same level of penetration of imports from China. So what this graph shows is the change in manufacturing employment for a given increase in Chinese imports. So for example in Norway, in Germany the decline in manufacturing employment after an increase in imports from China and also from other countries in the case of Germany was very close to zero not significantly different from zero while instead it was relatively large in the US in the UK and even more in Spain. So the thing about the issues about import penetration and manufacturing employment is that of course import penetration is unevenly concentrated across industries and employment effects are a lot more pronounced for low income individuals, non-college educated and to some extent men. As I was showing before employment in some countries was actually shielded for example in Germany and in Norway and this was mostly due to public policies for example welfare policies, active labour market policies that would ease the relocation of workers but also for example there are countries at the other end of the spectrum like Spain where the impact was enormous because of a specific feature of the Spanish labour market with a very large incidence of temporary jobs. An important thing about import penetration is that there is also a geographic aspect of inequality because manufacturing sector is relatively concentrated across space so there have been larger differential declines in employment in areas with greater exposure to import competition so this implied rising inequalities across areas. Okay this is, I'm afraid these are like micro data coming from the UK this is simply giving you an idea of who is most exposed to international trade so basically women of all education groups are less exposed than men and within each gender workers with low qualifications or no qualifications at all are more exposed than educated workers. What is more sort of recent in the research but very very important to the topic of this forum is the impact of manufacturing sorry exposure to manufacturing trade to prices and here latest estimates find very large effects on prices and inflation indeed I was talking about manufacturing but the evidence I'm presenting here refers to more than 200 product categories including both manufacturing goods and services services are a minority but services are already there and there are researchers at the LSE who found that there is a very strong association between the increase in import penetration and the fall in inflation so basically the result of this studies is a one percentage point increase in import penetration from China to the fall in inflation by more than two percentage points so this is a very large impact and what is perhaps more interesting is the channel through the channels through which impacts are taking place so you can have prices of imported goods and also broader impacts on the prices of locally produced goods and this research argues that this is where most of the impact has taken place and the reason why there was a strong impact on the prices of locally produced goods is due to changes in markups changes in market structure domestic producers were having to compete with rising productivity from Chinese producers and the market were falling so this is the main channel through which the increase in import penetration affected inflation so this is the correlation between the change in markups and exposure to international trade the relationship is negative and it's even stronger if you look at sectors of the domestic economy for example the US economy in which market concentration is higher so there is a strong impact on market concentration putting things together inflation and employment one percentage point increase in import penetration as I was saying before causes a 2.2% 2.2 percentage point falls in inflation but also a fall in employment of 1.8 percentage point the fall in inflation could be factored in into a rising consumer surplus so here there is a very ballpark figure of an increase in about $450,000 in surplus for each job that is displaced by international trade which makes it possible to compensate those who suffer job losses and also there are distributional impacts through the composition of expenditure so one could argue that import penetration rose faster for products that sell relatively more high income groups for example electronics but at the same time the price response was larger for product groups that sell to lower income houses for example appliances shoes, apparel etc so overall high income groups sorry low income groups I should say here benefit proportionally more so it's low income group it's not high income groups there is also quite a lot of evidence of broader impacts on international trade in goods through for example fishes in the fabric of society changes in the ideology changes in electoral outcomes I will not talk much about this because perhaps we have to make very different statements about services we don't know yet but the composition of the penetration of trading services is actually quite different from the composition of the penetration in trading goods so this is what I had in mind about service penetration this is also what Richard was showing the importance of the trading services because services is part of every sector of the economy and this is true in all economies in the European Union so here I'm giving you data for just a bunch of those economies but it's very very consistent across countries and most importantly if we want to think about winners and losers then perhaps we need to figure out that the inequality impacts on trading services are going to be quite different from the impacts on inequality that we've witnessed from the trading goods for example if you look at the goods sector which are the blue bars the share of female is relatively low it's just above one quarter and the share of college educated is also relatively low just below one quarter if you look at the service sector the gender composition is almost completely balanced 50% women and men and there is a much higher proportion of college educated workers so on the gender side we might expect a larger relative impact on female employment than what we have seen with globalization in goods and this is kind of important because much of the increasing female participation over the past 50 years or so was also aided to some extent by the rising services which is traditionally a very female intensive sector so women have sort of been shielded from the impact of international trade because they were underrepresented in the manufacturing sector this is not going to be the case with trading services and secondly the incidence of college education is a lot higher in services and this is just the total service sector this is the average service sector but of course the incidence of college education is a lot higher in the kind of services that are open to international competition for example financial services computer services, professional services now what Richard was lamenting is something to which we can all relate the lack of data especially data on imported services so the kind of evidence that will show here I'm afraid will not come from the kind of services that Richard had in mind in terms of high-skill financial services or professional services or computer services but will come from the other end of the spectrum of services which are nevertheless traded with a very specific program called the European Posting Policy so I think the evidence from the European Posting Policy is kind of interesting because it really gives us an idea of what to expect when there is international competition in services with this scheme jobs in non-tradable sectors are being gone short on site so it's mostly about construction cleaning, driving services a lot of manual service tax so foreign firms for example firms in Poland perform services in the customers country for example in Germany where the workers are only temporarily located so posted workers stay formally employed in the sending country but perform their services and sell their services in the receiving country so what kind of services we're talking about is this kind of pink red area that I've shaded in this picture so it's about 25% of the total international trade in services and it's almost 75% of the total flows of workers so talking about within EU workers flow if you look at France to which this picture refers about 75% of the inflows of workers to France are coming through the European posting service so this is playing a huge role and it has been increasing over time much faster than international migration within the EU what kind of skills, what kind of occupations we're talking about these are very low skill jobs so manual jobs mostly blue color a little bit of technicians it's really mostly like manual services like truck driving cleaning and also in construction what was the impact of that at the receiving end this graph here shows the impact of job posted workers on the receiving firms in France so there are two things, two important things to notice employment in those firms is falling after the liberalization of the job posting and it's falling very similarly to what we were witnessing for international trading goods so workers are displaced from those occupations that are now performed by off-short workers now another important point here which might be important for both inequality and inflation if you look at the orange line in that diagram that is completely flat so there is no impact whatsoever on local wages so in a sense this effect this result mimics to some extent what we have learned from the migration literature in most studies we don't really observe a detrimental impact of migration on wages and this is something that is replicated here looking at something that is more similar to the export of services rather than permanent migration so why does that happen it can happen for various reasons one reason why this is not happening is the reason to have migration of workers so this is not happening because there are general equilibrium effects the local workers migrate out of areas where posted workers arrive this is mostly because incumbent workers, local workers typically are protected by wage negotiation and in some cases they are bumped up the occupation ladders by the arrival of these kind of temporary migrants now in the very little time left I'll give you a very brief snapshot of what one can expect from the changing welfare from this kind of job posting policy in this case welfare mostly accrues the sending countries so this calibration about welfare refers to the sending countries for example Poland in the previous example for the sending countries this implies an enormous increase in welfare a remarkable increase in welfare mostly due to higher wages at destination and higher increases in productivity in the sending firms so to sort of wrap up and conclude what kind of takeaway points can we learn from existing evidence on international trading goods and what can be exported to evidence on international trading services so evidence from the past two decades has taught the lessons on various impacts of globalization in goods so we have seen changes in employment inequality and inflation much less is known about globalization in services to which the exposure in which country will be much larger now one point about globalization in services is that employment changes will not be as concentrated across groups of workers and most importantly will not be as concentrated geographically as we've seen for manufacturing goods trade so basically the impact on inequality are probably different and now the important question is probably a time of rising inflation rising concerns about inflation the question is will globalization in services help to reduce prices or to slow down inflation now the evidence here is at very early stage but whatever evidence is available points to the fact that the impact of price of services is very similar to the impact of price of goods so the kind of the few studies that we have point a very similar impact in terms of inflation now I should also mention that those studies have an approach that is more modest than what Richard was advocating before because those studies cannot use detailed prices of imported services to reduce form approach and to look at the correlation between trade openness in various services intermediate sectors as well and the correlation between final prices so we don't know the whole chain of transmission but the evidence that we have so far is relatively similar to what we know from goods now of course this evidence is too limited and is still too early to extrapolate to the broader bigger picture when service trade will expand further very much Thank you Barbara for very interesting discussion and if you take the presentation and the discussion you can see this is a huge topic it covers such a wide range and I think some of the other topics we didn't even get to so far is of course the interconnection with also multinational firms because again you might imagine I mean we know already a lot of services trade is within the firm so I don't go and search the world for the suppliers of services but if I contract with some domestic firm they may well be outsourcing within the firm or to their partners around the world to provide those services, intermediate services and also whenever we talk about globalization here in the European Union there's also a dimension of okay is it different within the single market and for services with the posted worker point of Barbara raised and other ways that a single European labor market works it's probably quite different so with that let me try and collect some questions initially from here in the room and then let's see online so please you may be rusty about putting up your hand but the history of Cintra is people are well able to put up their hand so I see too so I'm going to go with Kristen Forbes and then with Volker so Kristen please wait for the mic of course thanks very much so there's this fact out there that the shared global component of CPI inflation has increased quite dramatically but there has not been an increase in the shared global component of service inflation, wage inflation core inflation or put slightly differently if you look at say advanced economies global factors seem to be driving about 90% of the movement in CPI inflation but global factors do not play nearly as big a role in wage inflation, core inflation in the role of the global component of sort of core inflation wage inflation has not increased over time since 2000 since 2010 whatever the starting point is so I've been trying to square that fact with all the results you presented on this globalization of services increased rate of services potential explanations for what seems like disconnect because it seems like service trade increases, services become more globalized, it should play a bigger role in shared inflation around the world so I hit a couple potential hypotheses, it's wondering if you could tell me if you buy any of them or what I'm missing one theory is that according to your graphs the globalization of services is just taking off so maybe we're just not seeing the impact on sort of domestic service inflation around the world yet maybe it's just coming, it's just starting second potential assimilation as you showed is that there's a lot more volatility in goods prices, commodity prices service inflation is going up but it's not as volatile so maybe it's not driving changes in inflation around the world the same way monetary policy can respond et cetera it's like a trend that's just taken out a third hypothesis is that service inflation, global service inflation will not pass through the same way it's just a lot of intermediary factors and there's markups, pricing competition margins all of that is different for services so even if you get big movements in global service inflation it's not going to affect domestic economies the same way so that's three potential hypotheses wondering if you think any of those are the explanation or if there's something I'm missing why basically, so the bottom line is why is globalization of services is taken off, are we not seeing it pass through into domestic inflation rates to the same way probably sufficient to collect some questions Richard so if you can pass to Volcker over here thank you very much this is just triggered by a comment Richard Baldwin made or pointed out you said for the trade in intermediate commercial services the main constraints of barriers were technological and not policy and as technology changed you could have a quick increase outsourcing in intermediate services so I'm wondering if we're not ahead or already in the middle of developments where you have substantial policy induced barriers to that let me say some examples with a conflict in Russia and the sanctions we realize the power of the sanctions setting constraints say on financial flows we have cyber attacks cyber war so there are things where you have to defend yourself against if you look at potential conflict with China we see that how they basically develop parallel systems their own internet, their own platforms to be able to control them and the new technology also helps governments to control the new AI machine learning opens up so going forward in terms of this may still happening but also the comparative advantage which country you want to outsource to may also be very much influenced by the new I'm asking may also be influenced by the new strategic considerations I mean who is more likely to be an ally or neutral or an opponent so okay thank you I'll just take one more from Helen Ray so if you can pass the mic over in this side it's okay Helen here thank you very much so I wanted to go back to the interpretation of the excess inflation and the Balasas Samuelson that you mentioned so in Balasas Samuelson there are two important assumptions one is the low of one price for tradeable goods and the other one is the difference in productivity between tradeable and non-tradable and we are used to thinking of those two in giving a relative price increase when you have a productivity catch up in the manufacturing sector hence a real appreciation of countries catching up to the technological frontier and this is why in countries which are relatively rich countries we also have higher price level because the price of services is higher but everything that you pointed out to me seems to indicate that there's more tradeability in services so something more like the low of one price to services might be starting maybe to kick in to some extent for some services and similarly that some of the services being you know closer to automation not all of them as you pointed out might lead to relative productivity increase in the service sector so again that's a force moving in the opposite direction so how do we reconcile then the relative price movements with these two kind of forces that you showed in your underlying data Thank you so Richard let's see if you've responses to those questions Sure Kristen she asked a question and she answered it too very eloquently I thought that was great appreciate that so the share of globalization this is all about the correlation of inflation and globalization if you plot the two it looks hugely and that was generating a lot of they called it the globalized inflation hypothesis in the 2000s and people spent a lot of time looking at and breaking it down so why isn't that going on in services for instance so everything you said was correct but I would point out for three things first of all the HICP services are systematically non-traded so for example the subcomponents are housing hard to argue that even in the most globalized world that would be globalized miscellaneous of course that services nobody knows what it is recreation which is pretty local transportation which is this is local transportation and communications which is globalized and has had that coming down so the first thing I think is that the HIPC when you talk about the impact of service globalization on inflation it is systematically taking out the tradable things which are the intermediates so I don't expect the same correlation to come through it would have to come through those other things imported services affecting wage formation wage prices and the inputs into all the economies so I think that if we ever had the data it would come through those channels the other is I think it just started so there's a reason why we've essentially ignored services that's because they weren't very important in trade and automation and globalization something that happened in farms and factories not offices so although it was super important nothing exciting was happening in services so we didn't lavish lots of attention and research on it but the argument here is that digital technology is accelerating both the automation because of machine learning automating service tasks that could not be automated before and globalization because really good remote technology is allowing foreigners to work in our offices and teams in ways they never did before so it's still coming I would say that's the main thing is it's coming Volcker the backlash well thank you for asking for that that's chapter 7 in my latest 2019 book the title was a globalist upheaval and in that book I was trying to get people excited that this globalization and automation was going to lead to a future of work where office and professional jobs workers were very upset just like the factory workers before and they would push back and I have whole series of ways of how they might do that but the problem is is it's way harder than you might imagine and it's closely related to the problem of taxing putting a value out of tax and services it's very hard to know where a service was made or where it's coming from or what is valued in ways that somebody couldn't cleverly work around with it so once you try and start for instance taxing imports of service intermediates you'll have very difficult problems with diversion the second is do you really want the government looking at every internet flow to see if it's a service that should be taxed or regulated because that's what you'd actually have to do you'd have to pass services trade through a customs post in order to tax it or control it the way it was before or you go to the companies who are buying it and you impose very strict regulations on them on what they can do now in some industries that exist for instance medical privacy makes it very difficult to offshore certain settings and in Switzerland for instance with privacy on banking they never out shore the back office stuff because they're afraid of violating the privacy things so it's possible it's way harder than you might imagine and you'll notice that MC12 if we had had Nugosi here she would have told us that they renewed the digital moratorium on taxing digital flows not because they didn't want to but because finally they realized it was impractical excuse me so I don't think they're going to be able to do it easily unless they do something very radically Helene so the I agree totally and thank you for making those points so I brought out Balassa Samuelson to explain why in the past inflation has been so different than goods and dead on point that what I'm saying is both several of those things are going to change we may see productivity advances in services and we may see them tradable so to a certain extent that was the paper that was going to be the wow number that I didn't get to which was if services continue at this pace in 20 years inflation by 20 points or something like that so I agree very much what you said and thank you for pointing out that the Balassa Samuelson was history and moving forward we're moving out of Balassa Samuelson actually somebody here in the room ought to write a new paper both Balassa and Samuelson I think are no longer with us so we need a new one okay thank you very much for that let me just see Barbara do you have any extra comments to make okay so let me just see if there's any more comments or questions we're starting to run a little bit late but just in case so but if not know that these I think it will be a sign of success that people leave the session having I think a lot more to think about because this topic and maybe the nature of the paper the nature of these questions and answers as you say is very much something that we're going to be dealing with for many years to come a lot of deep issues have been raised so with that let's close this first session and let me thank again Richard and Barbara thank you