Simon Galle

Wow, weak July #jobsreport. Headline a touch softer than expectations, but real surprise is huge downward revisions to May & June.

-Payrolls grew just 73,000, below expectations
-Surprisingly large downward revisions to May (+144k to +19k) and Jun (+147k to +14k)
-Unemp up to 4.2%

#NumbersDay 1/

Please submit your papers to the series!

#EconSky #UkrainianView #Ukraine

The big question for LLM’s is not “will they revolutionize life” or “will they take our jobs?” It’s “who will benefit and who will lose.” It’s a very tricky question, and this paper is a careful attempt to work out the subtle mechanisms. Spoiler: Most of the cost is borne by white-collar types.

At least I've learned a lot from writing this paper.

Colleagues have also recommended its pedagogical qualities, so hopefully it's insightful for others as well.

Thanks for reading.🙏

Granted, the ideas in our analysis are not novel.

In my view, our contribution lies in integrating these fundamental forces on the labor demand and labor supply side in an elegant, concise, and transparent framework.

Example: administrative assistants may be displaced from their job due to AI. Whether that affects their eventual wage outcomes, depends on how transferable their skills are to other jobs.

Second, the reallocation elasticity (kappa) regulates the magnitude of the wage changes.

When labor reallocation is very elastic, differences in equilibrium wage changes are small.

When labor reallocation is inelastic, we get the highest possible wage differences.

Example: AI may take over (some) coding tasks, but demand for programmers may still increase if the increase in overall demand for IT services offsets the decline in programmer demand for a given IT output.

Note that when machines substitute workers in production (sigma >1), the wage impact for workers can still be positive if there is a sufficiently strong response in final demand.

First, (sigma - psi), the difference between the input substitution and final demand elasticities, regulate whether workers and machines are gross substitutes or complements and thereby the sign of the wage changes.

The model has 3 key elasticities: the input substitution elasticity (sigma), the final demand elasticity (psi), and the labor reallocation elasticity (kappa).

Proposition 1 explains how cost shocks translate into wage changes as a function of these three elasticities.

Referees have so far compared the first paper of our paper to a "textbook exposition." Since our type of model is underutilized in economics, I'll take that as a complement :).

New version of our paper "The Labor Market Impact of Technical Change: Inspecting the Mechanisms," with F. Carpena.

www.ocf.berkeley.edu/~sgalle/wp-c...

We present a stylized, tractable model on how occupation-specific technical change affects the wage distribution.
#EconSky

All in all, not a cause for celebration. But I much prefer the geopolitics of today's world over the geopolitics on April 2nd.

Fossil Fool How Europe took Trump for a ride

In addition, while the optics of the deal sure look bad, the EU's promises to buy more US fuel or invest in the US seem like cheap talk: paulkrugman.substack.com/p/fossil-fool,

and the sector-specific benefits for US vs. EU manufacturing are also doubtful: paulkrugman.substack.com/p/i-coulda-m...

The EU has validated Trump’s bullying trade agenda The US president’s deals are not a win-win for the global economy

Agree that this trade deal isn't the EU's finest hour. Accepting 15% tariffs instead of retaliating indeed undermines the rules-based trade system.

Still, 4 months ago, the US risked veering fully towards Russia, whereas now, the NATO alliance seems in ok shape. Huge +.

www.ft.com/content/11aa...

Column on the Responsibility of Israelis to Speak Up Against Mass Starvation in Gaza I generally restrict my comments here to economic issues, but some things are hard to ignore.

This piece is very moving, and reflects how I am feeling about the Israel/Gaza calamity.

Silence in the Face of Gaza's Starvation is Absolute Betrayal of Holocaust Victims
By Orit Kamir
Originally published in Haaretz

substack.com/home/post/p-...

Thanks to @deanbaker13.bsky.social for posting it.

"The Late Show with Stephen Colbert," the most-watched late-night program on U.S. broadcast television and a frequent platform of satire aimed at President Donald Trump, will end its 10-year run on CBS in May 2026, the network said on Thursday.

“Don’t say that you care deeply about free speech and then you’re quiet,” Obama continued. “No, you stand up for free speech when it’s hard."

What's Going on with Trump's Trade Wars? An Update Monkey-chaos as constantly changing but ever-recurring kaleidoscope policy, with fake deals and real drama: the Trump performative tariff-threat theater of 2025 is a show running 24/7, and a...

"A country that keeps its word is a country that can “make deals”. A country that does not, cannot.

But the Trump administration’s approach is that of making random non-credible threats to generate press coverage as its governing philosophy."

by @delong.social

open.substack.com/pub/braddelo...

Climate risks: no longer the tragedy of the horizon The European Central Bank (ECB) is the central bank of the European Union countries which have adopted the euro. Our main task is to maintain price stability in the euro area and so preserve the purch...

Influx of Chinese EVs along the lines of Japanese/Korean cars in the 80s: negligible overall GDP impact, acc to IMF calculations.

Climate change, natural disaster scenario, until 2030: -4.7% of GDP in the euro area.

Just to put that into perspective. www.ecb.europa.eu/press/blog/d...

GiveWell's response: "We continue to research and fund highly cost-effective programs that now have an increased need for support [...] and we expect to find more excellent giving opportunities than we’ll be able to fund."

Overview of newly funded grants provided.

www.givewell.org/research/fun...

"The depreciation of the US Dollar following [Liberation Day] was consistent with models capturing tariff-shock retaliation and hence not surprising. The spike in long-maturity US Treasury yields was more unprecedented."

From a new paper by Ostry, Lloyd and Corsetti:
cadmus.eui.eu/server/api/c...

A reminder of how the number of centrifuges in Iran soared after Trump’s 2018 JCPOA withdrawal.

@brendannyhan.bsky.social

Trump has made it abundantly clear that he treads carefully around nuclear powers, but has no scruples when it comes to non-nuclear ones. Nuclear proliferation in the Middle East seems rather more likely now.

Witnesses describe ‘horror’ after Israeli forces fire at Palestinians waiting for aid trucks At least 51 people killed and hundreds wounded in Khan Younis as they sought food supplies, says Gaza health ministry

Every day, another deliberate massacre of starving civilians.

Silence speaks louder than words.

www.theguardian.com/world/2025/j...

It’s so crazy. I was told this was playing right into Trump’s hands!

Filling the void: Why the EU should step up amid Trump’s foreign aid cuts The withdrawal of US foreign aid could exacerbate humanitarian crises and trigger political instability, jeopardising the EU’s own interests

I know there are severe political hurdles for the EU to increase foreign aid, but:

- the humanitarian need is more urgent than ever,
- the geopolitical benefits are growing.

Strategies for increasing aid seem to be one of the most underdiscussed topics of the day.

ecfr.eu/article/fill...

PhD position at the intersection of international trade, environmental economics, and labor economics at the University of Göttingen, with the wonderful Lei Li.

Recommended! #EconSky

www.uni-goettingen.de/de/644546.ht...