APRIL 8 2011

Abiad, Abdul, Dell'Ariccia, Giovanni,  Li, Bin, IMF:  Creditless Recoveries. Recoveries that occur in the absence of credit growth are often dubbed miracles and named after mythical creatures. Yet these are not rare animals, and are not always miracles. About one out of five recoveries is "creditless", and average growth during these episodes is about a third lower than during "normal" recoveries. Aggregate and sectoral data suggest that impaired financial intermediation is the culprit. Creditless recoveries are more common after banking crises and credit booms. Furthermore, sectors more dependent on external finance grow relatively less and more financially dependent activities (such as investment) are curtailed more during creditless recoveries.

Justin Wolfers, Freakonomics Blog: Advocacy Science: John Taylor Edition. Sometimes you see the perfect piece of evidence. The scatter plot that is just so. The data line up perfectly. And then you realize, perhaps they’re just too perfect. What you are seeing is advocacy, dressed up as science. Here’s an example, provided by John Taylor. But when you look beyond the cherry-picked sample, the correlation is a decidedly unimpressive -0.14.

Scott Shane, Cleveland Fed: The Great Recession’s Effect on Entrepreneurship. Though the recent recession was the worst downturn since the Great Depression, some observers argue that one silver lining is an upswing in entrepreneurship. Recessions, they claim, provide laid-off workers with the motivation to start their own businesses, and a recent study suggests that in 2009 the number people becoming self employed spiked to its highest level in more than a decade. Unfortunately, a careful look at multiple sources of data shows that the Great Recession was actually a time of considerable decline in entrepreneurial activity in the United States.

Jean-Louis Arcand, Enrico Berkes, Ugo Panizza, VoxEU: Too much finance? Over the last three decades the US financial sector has grown six times faster than nominal GDP. This column argues that there comes a point when the financial sector has a negative effect on growth – that is, when credit to the private sector exceeds 110% of GDP. It shows that, of the advanced countries currently suffering in the fallout of the global crisis were all above this threshold.

Barry Eichengreen, Donghyun Park, Kwanho Shin, NBER: When Fast Growing Economies Slow Down: International Evidence and Implications for China. Using international data starting in 1957, we construct a sample of cases where fast-growing economies slow down. The evidence suggests that rapidly growing economies slow down significantly, in the sense that the growth rate downshifts by at least 2 percentage points, when their per capita incomes reach around $17,000 US in year-2005 constant international prices, a level that China should achieve by or soon after 2015. Among our more provocative findings is that growth slowdowns are more likely in countries that maintain undervalued real exchange rates.

Martha A. Starr, American University: Contributions of Economists to the Housing-Price Bubble. This paper analyzes data from 24 California newspapers on assessments and predictions offered by economists as to whether bubbles were forming in the state‟s housing markets. In brief, we find that the California public was fairly decently served by economists offering their views via the media -- although with some significant problems of biased forecasts not made in good faith, and of inattention to concerns about „harm avoidance‟ that ought to apply when economists share their opinions in this way.

Julapa Jagtiani, William W. Lan, Philadelphia Fed: Strategic Default on First and Second Lien Mortgages During the Financial Crisis. Strategic default behavior suggests that the default process is not only a matter of inability to pay. Economic costs and benefits affect the incidence and timing of defaults. As with prior research, we find that people default strategically as their home value falls below the mortgage value (exercise the put option to default on their first mortgage). While some of these homeowners default on both first mortgages and second lien home equity lines, a large portion of the delinquent borrowers have kept their second lien current during the recent financial crisis.

Miki Kohara et al, Osaka University: Is longer unemployment rewarded with longer job tenure? We focus on job tenure as an indicator of a good quality job match after unemployment. We match two sets of Japanese administrative data compiled by the public employment security offices: one includes information about the circumstances of job seekers receiving unemployment insurance, and the other includes information about job seekers applying for jobs. We first show a negative relationship between unemployment duration and the subsequent job duration. Restricting the sample to job seekers who lower their reservation wage in the final 59 days before expiration of unemployment insurance, we secondly show an even greater negative effect of unemployment duration on the following job duration. The importance lies not only in the duration of unemployment. If job seekers keep a high reservation wage because of the benefits of unemployment insurance, and lower it in response to the expiration of insurance, prolonged unemployment will result in short job duration after unemployment.

Michael Greenstone, Adam Looney, The Hamilton Project: Women in the Workforce: Is Wage Stagnation Catching Up to Them Too? American women are responding to market signals and pursuing higher levels of education, making them more competitive in the U.S. and global economies. Women also fared better in the Great Recession and its aftermath. From the start of the recession in 2007, the employment-to-population ratio of women (ages 25 and over) declined by only 4.7 percent—compared with a 7 percent decline among men. That being said, we are also witnessing stagnation in the median earnings of women. While this is concerning, it is likely a broader symptom of declining opportunities for all American workers. Only after the economy has recovered will we have a better sense about whether other factors are the driving force behind this leveling off for women.

Guy Lacroix, Marie-Ève Brouard, IZA: Work Absenteeism Due to a Chronic Disease. Research on health-related work absenteeism focuses primarily on moral hazard issues but seldom discriminates between the types of illnesses that prompt workers to stay home or seek care. This paper focuses on chronic migraine, a common and acute illness that can prove to be relatively debilitating. Our analysis is based upon the absenteeism of workers employed in a large Fortune-100 manufacturing firm in the United States. We model their daily transitions between work and absence spells between January 1996 up until December 1998. Only absences due to migraine and depression, its main comorbidity, are taken into account. Our results show that there is considerable correlation between the different states we consider. In addition, workers who are covered by the Blue Preferred Provided Organization tend to have shorter employment spells but also shorter migraine spells.

Jim Harter, Sangeeta Agrawal, Gallup: Workers in Bad Jobs Have Worse Wellbeing Than Jobless. American workers who are emotionally disconnected from their work and workplace -- known as "actively disengaged" workers -- rate their lives more poorly than do those who are unemployed. Forty-two percent of actively disengaged workers are thriving in their lives, compared with 48% of the unemployed. At the other end of the spectrum are "engaged" employees -- American workers who are involved in and enthusiastic about their work -- 71% of whom are thriving.

Robert J. Shiller, Virginia M. Shiller, Yale University: Economists as Worldly Philosophers. While leading figures in the early history of economics conceived of it as inseparable from philosophy and other humanities, there has been movement, especially in recent decades, towards its becoming an essentially technical field with narrowly specialized areas of inquiry. Certainly, specialization has allowed for great progress in economic science. However, recent events surrounding the financial crisis support the arguments of some that economics needs to develop forums for interdisciplinary interaction and to aspire to broader vision.

Syngjoo Choi et al, NBER: Who Is (More) Rational? Revealed preference theory offers a criterion for decision-making quality: if decisions are high quality then there exists a utility function that the choices maximize. We conduct a large-scale field experiment that enables us to test subjects' choices for consistency with utility maximization and to combine the experimental data with a wide range of individual socioeconomic information for the subjects. There is considerable heterogeneity in subjects' consistency scores: high-income and high-education subjects display greater levels of consistency than low-income and low-education subjects, men are more consistent than women, and young subjects are more consistent than older subjects. We also find that consistency with utility maximization is strongly related to wealth: a standard deviation increase in the consistency score is associated with 15-19 percent more wealth.

Daniel S. Hamermesh, Jason Abrevaya, University of Texas: Beauty Is the Promise of Happiness”? We measure the impact of individuals’ looks on their life satisfaction or happiness. Using five data sets from the U.S., Canada, the U.K., and Germany, we construct beauty measures in different ways that allow putting a lower bound on the true effects of beauty on happiness. Personal beauty raises happiness, with a one standard-deviation change in beauty generating about 0.10 standard deviations of additional satisfaction/happiness among men, 0.12 among women. Accounting for a wide variety of covariates, including those that might be affected by differences in beauty, and particularly effects in the labor and marriage markets, the impact among men is more than halved, among women slightly less than halved. The majority of the effect of beauty on happiness may work through its effects on economic outcomes.