DECEMBER 2011

DECEMBER 16 2011
Ryan Avent, the Economist Blog: The outer limits. No one really wants everything to blow up around the holidays, so markets and governments seem to have crawled out of their trenches to sing Silent Night for now, and will resume the bloodshed in the new year. We won't have to wait long for trouble in 2012. Early in the new year, auctions of sovereign debt will crank back up. And as a new report from Moody's Economy.com indicates, much of Europe is moving past the point of no return.

Oscar Jorda, Moritz Schularick, Alan M. Taylor, San Francisco Fed: When Credit Bites Back: Leverage, Business Cycles, and Crises. This paper studies the role of leverage in the business cycle. Based on a study of nearly 200 recession episodes in 14 advanced countries between 1870 and 2008, we document a new stylized fact of the modern business cycle: more credit-intensive booms tend to be followed by deeper recessions and slower recoveries. We  find a close relationship between the rate of credit growth relative to GDP in the expansion phase and the severity of the subsequent recession. We use local projection methods to study how leverage impacts the behavior of key macroeconomic variables such as investment, lending, interest rates, and inflation. The effects of leverage are particularly pronounced in recessions that coincide with financial crises, but are also distinctly present in normal cycles. The stylized facts we uncover lend support to the idea that financial factors play an important role in the modern business cycle.

Paul Beaudry, Deokwoo Nam, Jian Wang, Dallas Fed: Do Mood Swings Drive Business Cycles and is it Rational? This paper provides new evidence in support of the idea that bouts of optimism and pessimism drive much of US business cycles. In particular, we begin by using sign-restriction based identification schemes to isolate innovations in optimism or pessimism and we document the extent to which such episodes explain macroeconomic fluctuations. We then examine the link between these identified mood shocks and subsequent developments in fundamentals using alternative identification schemes (i.e., variants of the maximum forecast error variance approach). We find that there is a very close link between the two, suggesting that agents' feelings of optimism and pessimism are at least partially rational as total factor productivity (TFP) is observed to rise 8-10 quarters after an initial bout of optimism. While this later finding is consistent with some previous findings in the news shock literature, we cannot rule out that such episodes reflect self-fulfilling beliefs. Overall, we argue that mood swings account for over 50% of business cycle fluctuations in hours and output.

Simon Potter, NY Fed: The Failure to Forecast the Great Recession. Why Did We Fail to Forecast the Great Recession? 1) Misunderstanding of the housing boom. 2) A lack of analysis of the rapid growth of new forms of mortgage finance. 3) Insufficient weight given to the powerful adverse feedback loops between the financial system and the real economy.

Paul Bergin, San Francisco Fed: Asset Price Booms and Current Account Deficits. Before the global financial crisis of 2007–2009, the United States and several other countries posted large current account deficits. Many of these countries also experienced asset price booms. Evidence suggests the two developments were linked. Rising asset values in the United States permitted households to borrow more easily to boost consumption, while the net sale of debt securities abroad financed current account deficits. The fall in some asset prices since the crisis can make it easier to reduce current account imbalances

Luca Agnello, Ricardo M Sousa, NIPE: Fiscal Consolidation and Income Inequality: Using a panel of 18 industrialized countries from 1970 to 2010, we find that income inequality significantly rises both during periods of fiscal consolidation and in the aftermath of such adjustments. In addition, fiscal authority that is driven by spending cuts seems to be more detrimental for income distribution than in the case of tax hikes. Considering the linkages between banking crises and fiscal consolidation, we show that the impact on the income gap is amplified when fiscal adjustments take place after the resolution of such financial turmoils. Our results also provide support for the Kuznets relationship and corroborate the idea that trade can lead to a more unequal distribution of income.

Annabelle Krause, IZA: Work to Live or Live to Work? Unemployment, Happiness, and Culture. Happiness drops when individuals become unemployed. The negative impact of the unemployment shock, however, may differ by cultural background. To test the hypothesis of a 'Teutonic work ethic', this paper takes advantage of Switzerland in its cultural diversity. By comparing different cultural groups in the same institutional setting, I empirically test whether such deep psychological traits have an influence on how unemployment is perceived. It is found that unemployment has a significantly negative effect on life satisfaction in Switzerland. I furthermore present evidence which confirms to some extent the hypothesis that Swiss German individuals suffer more from unemployment, although for the most part, these results are without statistical significance. Swiss Germans are additionally found to be happier than their French-speaking compatriots – independent of whether they are unemployed. This difference between Romanic and Germanic cultural backgrounds is in line with previous findings, but deserves further research attention.

Emanuela Marrocu, Raffaele Paci, University of Cagliari: Education Or Creativity: What Matters Most For Economic Performance? This paper aims to disentangle this issue by proposing a disaggregation of human capital into three nonoverlapping categories of creative graduates, bohemians and non creative graduates. Using a spatial error model to account for spatial dependence, we assess the concurrent effect of the human capital indicators on total factor productivity for 257 regions of EU27. Our results indicate that highly educated people working in creative occupations are the most relevant component in explaining production efficiency, non creative graduates exhibit a lower impact, while the bohemians do not show a significant effect on regional performance. Moreover, a significant influence is exerted by technological capital, cultural diversity and industrial and geographical characteristics, thus providing robust evidence that a highly educated, innovative, open and culturally diverse environment is becoming more and more central for productivity enhancements.

Joshua D. Angrist, Parag A. Pathak, Christopher R. Walters, NBER: Explaining Charter School Effectiveness. Estimates using admissions lotteries suggest that urban charter schools boost student achievement, while charter schools in other settings do not. We explore student-level and school-level explanations for these differences using a large sample of Massachusetts charter schools. Our results show that urban charter schools boost achievement well beyond ambient non-charter levels (that is, the average achievement level for urban non-charter students), and beyond non-urban achievement in math. Student demographics explain some of these gains since urban charters are most effective for non-whites and low-baseline achievers. At the same time, non-urban charter schools are uniformly ineffective. Our estimates also reveal important school-level heterogeneity in the urban charter sample. A non-lottery analysis suggests that urban schools with binding, well-documented admissions lotteries generate larger score gains than under-subscribed urban charter schools with poor lottery records. We link the magnitude of charter impacts to distinctive pedagogical features of urban charters such as the length of the school day and school philosophy. The relative effectiveness of urban lottery-sample charters is accounted for by over-subscribed urban schools' embrace of the No Excuses approach to education.

Christopher J. Ruhm, Jane Waldfogel, IZA: Long-Term Effects of Early Childhood Care and Education. We find only limited evidence that expansions of parental leave durations improved long-run educational or labor market outcomes of the children whose parents were affected by them, perhaps because benefits are hard to measure or confined to sub-groups, or because leave entitlements were sufficiently long, even before recent extensions, to yield most potential benefits. By contrast, expansions of early education generally yield benefits at school entry, adolescence, and for adults, particularly for disadvantaged children; however the gains may be less pronounced when high quality subsidized child care was available prior to the program expansion or when subsidies increased the use of low quality care.

The Browser: Daron Acemoglu on Inequality. The problem is that in society over the last 20 years – and Wall Street is a poster child of this – we have created a platform where the ambition and greed of people, often men, has been channelled in a very anti-social, selfish and socially destructive direction. The risk-taking that for Steve Jobs and Bill Gates led to innovation has led to exploitative behaviour and risk-taking at the expense of the government and poor people for the Wall Street bankers. What’s to blame are the institutions. We have let our institutions fail.

Costas Meghir, Mårten Palme, Marieke Schnabel, IZA: The Effect of Education Policy on Crime: An Intergenerational Perspective. A number of studies have shown that education reforms extending compulsory schooling reduce criminal behavior of those affected by the reform. We consider the effects of a major Swedish educational reform on crime by exploiting its staggered implementation across Sweden. We first show that the reform reduced crime rates for the generation directly affected by the reform. We then show that the benefits extended to the next generation with large reductions in the crime rates of the children of those affected. The effect operates only through the father and points in the direction of improved parenting rather than resources.

Matthew Yglesias, Slate:  The Norwegian Butter Crisis. An absurd dairy shortage and its very valuable economic lessons. It seems more than a little absurd for one of the richest countries on earth (per capita of GDP, only Luxembourg and tiny Liechtenstein have it beat) to be rationing a basic household commodity, which is what’s happening . But behind this silly story are several important economic lessons about trade and the surprising economic dilemmas posed by striking it rich,

AGING AND RETIREMENT

Axel H. Börsch-Supan, MEA: Entitlement Reforms in Europe: Policy mixes in the current pension reform process. Current costs are high, and the pressures will increase due to population aging and negative incentive effects. This paper focuses on the pension reform process in Europe. It links the causes for current problems to the cures required to make the pay-as-you-go entitlement programs in Continental Europe sustainable above and beyond the financial crisis. It discusses examples which appear, from a current point of view, to be the most viable and effective options to achieve successful changes in the entitlement system. There is no single policy prescription that can solve all problems at once. Reform elements include a freeze in the contribution and tax rates, an indexation of benefits to the dependency ratio, measures to stop the current trend towards early retirement, an adaptation of the normal retirement age to increased life expectancy, and more reliance on private savings – elements of a sustainable but complex multipillar system of pensions and similar entitlement programs.

DECEMBER 9 2011

Kenneth Rogoff, Project Syndicate: Is Modern Capitalism Sustainable? Continental European capitalism, which combines generous health and social benefits with reasonable working hours, long vacation periods, early retirement, and relatively equal income distributions, would seem to have everything to recommend it – except sustainability. China’s  Darwinian capitalism, with its fierce competition among export firms, a weak social-safety net, and widespread government intervention, is widely touted as the inevitable heir to Western capitalism, if only because of China’s huge size and consistent outsize growth rate. Yet China’s economic system is continually evolving. Perhaps the real point is that, in the broad sweep of history, all current forms of capitalism are ultimately transitional. As pollution, financial instability, health problems, and inequality continue to grow, and as political systems remain paralyzed, capitalism’s future might not seem so secure in a few decades as it seems now.

Aaron Tornell, Frank Westerman, VoxEU: Eurozone Crisis, Act Two: Has the Bundesbank reached its limit? If you thought the Eurozone crisis was coming to an end this week, this column argues that we may barely be reaching the end of Act One. In Act Two of the unfolding Eurozone drama, the new measures might include the ECB printing more money, the EU announcing the issuance of Eurobonds, or the IMF extending credit lines to strapped governments. The motive of such a policy response is to prevent a speculative attack and induce a shift to the good equilibrium. These actions will buy some time for economic and fiscal reforms to take place. However, as previous experiences suggest, if reforms do not take place, these measures may be very costly to the taxpayer.

Kevin Drum, Mother Jones Blog: Who's Responsible For the Euromess? Let me make it clear that nothing here is meant to absolve the periphery countries from their part in this. Ireland fed the fire of its property bubble irresponsibly, Greece lied about its finances, and throughout southern Europe there was a persistent refusal to reform their labor practices, improve productivity, and live within their means. The core countries have every right to hold the periphery accountable for this. At the same time, this is fundamentally a story of economics, not morality, and it's only in Step 1 above that the periphery countries bear even a share of the blame for what happened. The rest was either a result of deliberate core policies or else the inevitable result of those policies. Whether Germany likes to hear it or not, it's simply a fact that both sides allowed — even encouraged — capital flows to remain imbalanced for far too long. The periphery enjoyed access to cheap money and the core liked having a thriving market for its exports. The core and the periphery both rode this wave up, and now they're both going to have to ride it down.

Paul Krugman, NYT Blog: Profligate Zombies. Dean Baker has a series of posts about bad reporting on the euro crisis; he is evidently, and with good reason, upset at the way just about every report states as a fact that excessive borrowing caused the crisis. This is another one of those zombie ideas that permeate our discourse; it’s part of the narrative, and no amount of evidence can kill it or even stop reporters/editors from stating it as a fact.

Felix Salmon, Reuters Blog: How the ECB could be forced to print money. Basically, there’s a constant flow of money out of the European periphery and towards the center. Up until now, that flow has been matched by an equal and opposite flow of central bank lending from the Bundesbank to the PIIGS central banks. And when the Bundesbank runs out of money to lend those central banks? The ECB will have no choice but to step in and print all the money necessary to stop those banks from going bust. And that, I think, is how we’re going to see the ECB finally take on the lender-of-last-resort role it has been so reluctant to adopt until now.

 Greg Howard, Robert Martin, Beth Anne Wilson, Fed: Are Recoveries from Banking and Financial Crises Really So Different? This paper studies the behavior of recoveries from recessions across 59 advanced and emerging market economies over the past 40 years. Focusing specifically on the performance of output after the recession trough, we find little or no difference in the pace of output growth across types of recessions. In particular, banking and financial crisis do not affect the strength of the economic rebound, although these recessions are more severe, implying a sizable output loss. However, recovery does change with some characteristics of recession. Recoveries tend to be faster following deeper recessions, especially in emerging markets, and tend to be slower following long recessions. Most recessions are associated with a slowing, if not outright decline in house prices, but recessions with large declines in house prices also tend to have slower recoveries. Long recessions and those associated with poor housing-market outcomes can lead to sustained output losses relative to pre-crisis trends. Consistent with microeconomic studies showing permanent income loss to job-losing workers during recessions, we find that the sustained deviation in output from trend is associated with a reduction in labor input, especially linked to declines in employment and labor-force participation following recessions. On net, our results imply that the output/employment gap following a severe, long recessions is considerably smaller than is typically assumed by standard macro models, which in turn may have substantial implications for macroeconomic policy during recoveries.

Viral V. Acharya, Raghuram G. Rajan, NBER: Sovereign Debt, Government Myopia, and the Financial Sector. What determines the sustainability of sovereign debt? In this paper, we develop a model where myopic governments seek electoral popularity but can nevertheless commit credibly to service external debt. They do not default when they are poor because they would lose access to debt markets and be forced to reduce spending; they do not default when they become rich because of the adverse consequences to the domestic financial sector. Interestingly, the more myopic a government, the greater the advantage it sees in borrowing, and therefore the less likely it will be to default (in contrast to models where sovereigns repay because they are concerned about their long term reputation). More myopic governments are also likely to tax in a more distortionary way, and create more dependencies between the domestic financial sector and government debt that raise the costs of default. We use the model to explain recent experiences in sovereign debt markets.

Roberto Perotti, NBER: The "Austerity Myth": Gain Without Pain? As governments around the world contemplate slashing budget deficits, the “expansionary fiscal consolidation hypothesis” is back in vogue. I argue that, as a statement about the short run, it should be taken with caution. I present four detailed case studies, two – Denmark and Ireland – undertaken under fixed exchange rates (the most relevant case for many Eurozone countries today) and two – Finland and Sweden - after floating the currency. All four episodes were associated with an expansion; but only in Denmark the driver of growth was internal demand. However, after three years a long slump set in as the economy lost competitiveness. In all the others for a long time the main driver of growth was exports. In Ireland this occurred because the sterling coincidentally appreciated. In Finland and Sweden the currency experienced an extremely large depreciation after floating. In all consolidations interest rate fell fast, and wage moderation played a key role in generating a gain competitiveness and a decline in interest rates. These results cast doubt on at least some versions of the “expansionary fiscal consolidations” hypothesis.

Paul Hannon WSJ Blog: OECD Suggests Raising Taxes to Combat Inequality. Governments in a number of developed economies should consider introducing or raising taxes on wealth and property as part of a range of measures designed to halt and reverse rising income inequality, the Organization for Economic Cooperation and Development said Monday. In its first report on the subject since 2008, the OECD said the gap between rich and poor in most of its 34 members has continued to widen. The average income of the richest 10% of the population in developed economies is now nine times that of the poorest 10%, having been five times as large in the 1980s

Thomas Piketty, Emmanuel Saez, Stefanie Stantcheva, NBER: Optimal Taxation of Top Labor Incomes: A Tale of Three. We develop a model where top incomes respond to marginal tax rates through three channels: (1) the standard supply-side channel through reduced economic activity, (2) the tax avoidance channel, (3) the compensation bargaining channel through efforts in influencing own pay setting. We then analyze top income and top tax rate data in 18 OECD countries. There is a strong correlation between cuts in top tax rates and increases in top 1% income shares since 1975, implying that the overall elasticity is large. But top income share increases have not translated into higher economic growth, consistent with the zero-sum bargaining model. This suggests that the first elasticity is modest in size and that the overall effect comes mostly from the third elasticity. Consequently, socially optimal top tax rates might possibly be much higher than what is commonly assumed.

Dani Rodrik, Harvard University: Unconditional Convergence. Unlike economies as a whole, manufacturing industries exhibit unconditional convergence in labor productivity. The paper documents this finding for 4-digit manufacturing sectors for a large group of developed and developing countries over the period since 1990. The coefficient of unconditional convergence is estimated quite precisely and is large, at 3.0-5.6 percent per year depending on the estimation horizon. The result is robust to a large number of specification tests, and statistically highly significant. Because of data coverage, these findings should be as viewed as applying to the organized, formal parts of manufacturing.

Olivier Bargain, André Decoster, Mathias Dolls, Dirk Neumann, Andreas Peichl, Sebastian Siegloch, IZA: Welfare, Labor Supply and Heterogeneous Preferences: Evidence for Europe and the US. Following the report of the Stiglitz Commission, measuring and comparing well-being across countries has gained renewed interest. Yet, analyses that go beyond income and incorporate non-market dimensions of welfare most often rely on the assumption of identical preferences to avoid the difficulties related to interpersonal comparisons. In this paper, we suggest an international comparison based on individual welfare rankings that fully retain preference heterogeneity. Focusing on the consumption-leisure trade-off, we estimate discrete choice labor supply models using harmonized microdata for 11 European countries and the US. We retrieve preference heterogeneity within and across countries and analyze several welfare criteria which take into account that differences in income are partly due to differences in tastes. The resulting welfare rankings clearly depend on the normative treatment of preference heterogeneity with alternative metrics. We show that these differences can ! indeed be explained by estimated preference heterogeneity across countries – rather than demographic composition.

Will Dobbie, Roland G. Fryer, Jr, NBER: Getting Beneath the Veil of Effective Schools: Evidence from New York City. Charter schools were developed, in part, to serve as an R&D engine for traditional public schools, resulting in a wide variety of school strategies and outcomes. In this paper, we collect unparalleled data on the inner-workings of 35 charter schools and correlate these data with credible estimates of each school's effectiveness. We find that traditionally collected input measures -- class size, per pupil expenditure, the fraction of teachers with no certification, and the fraction of teachers with an advanced degree -- are not correlated with school effectiveness. In stark contrast, we show that an index of five policies suggested by over forty years of qualitative research -- frequent teacher feedback, the use of data to guide instruction, high-dosage tutoring, increased instructional time, and high expectations -- explains approximately 50 percent of the variation in school effectiveness. Our results are robust to controls for three alternative theories of schooling: a model emphasizing the provision of wrap-around services, a model focused on teacher selection and retention, and the "No Excuses'' model of education. We conclude by showing that our index provides similar results in a separate sample of charter schools.

Petter Lundborg, Martin Nordin, Dan-Olof Rooth, IZA: The Intergenerational Transmission of Human Capital: Exploring the Role of Skills and Health Using Data on Adoptees and Twins. In this paper, we focus on possible causal mechanisms behind the intergenerational transmission of human capital. For this purpose, we use both an adoption and a twin design and study the effect of parents' education on their children's cognitive skills, non-cognitive skills, and health. Our results show that greater parental education increases children's cognitive and non-cognitive skills, as well as their health. These results suggest that the effect of parents' education on children's education may work partly through the positive effect that parental education has on children's skills and health.

Antonio Filippin, Marco Paccagnella, IZA: Family Background, Self-Confidence and Economic Outcomes. In this paper we analyze the role played by self-confidence, modeled as beliefs about one's ability, in shaping task choices. We propose a model in which fully rational agents exploit all the available information to update their beliefs using Bayes' rule, eventually learning their true type. We show that when the learning process does not convergence quickly to the true ability level, even small differences in initial confidence can result in diverging patterns of human capital accumulation between otherwise identical individuals. As long as inital differences in the level of self-confidence are correlated with the socioeconomic background (as a large body of empirical evidence suggests), self-confidence turns out to be a channel through which education and earnings inequalities are transmitted across generations. Our theory suggests that cognitive tests should take place as early as possible, in order to avoid that systematic differences in self-confidence among equally talented people lead to the emergence of gaps in the accumulation of human capital.

Charlotte Cabane, Ecole d'Économie de Paris: Childhood Sporting Activities and Adult Labour-Market Outcomes. It is well known that non-cognitive skills are an important determinant of success in life. However, their returns are not simple to measure and, as a result, relatively few studies have dealt with this empirical question. We consider sports participation while at school as one way of improving or signaling the individual's non-cognitive skills endowment. Using the National Longitudinal Study of Adolescent Health, which looks at students who were in grades 7-12 in 1994-95, we track how the students are doing as late as 2008. In the end, participating in team sports once a week as a student increases the hourly wage by 1.5%. Not a lot but still significant, especially as this for adults in their thirties, and gaps tend to widen later on. Individual sports seem only to have an impact for adult outcomes of girls.

AGING AND RETIREMENT

Rob Euwals, Elisabetta Trevisan, CPB: Early Retirement and Financial Incentives: Differences Between High and Low Wage Earners. This paper investigates the impact of financial incentives on early retirement behaviour for high and low wage earners. Using a stylized life-cycle model, we derive hypotheses on the behaviour of the two types. We use administrative data and employ two identification strategies to test the predictions. First, we exploit exogenous variation in the replacement rate over birth cohorts of workers who are eligible to a transitional early retirement scheme. Second, we employ a regression discontinuity design by comparing workers who are eligible and non-eligible to the transitional scheme. The empirical results show that low wage earners are, as predicted by the model, more sensitive to financial incentives. The results imply that low wage earners will experience a stronger incentive to continue working in an optimal early retirement scheme.

Malene Kallestrup-Lamb, Aarhus University:  The Role of the Spouse in Early Retirement Decisions for Older Workers. Instead of considering dual retirement we recognize the importance of the spouse in the early retirement decision by assessing the effect of a rich number of spousal variables. Given the grouped nature of the data we set up a semi-parametric single risk grouped duration proportional hazard model accounting for right censoring and allows for time-varying covariates, a nonparametric baseline and unobserved heterogeneity. We find that spousal characteristics do influence the retirement decision and significant gender asymmetries also exist in the effects of spouse's characteristics.

Garry F. Barrett, Milica Kecmanovic, University of Sydney: Subjective Well-being in Retirement: Evidence from HILDA. This research examines individual's self-reported changes in standard of living, financial security, and overall happiness over the transition to retirement. It is found subjective wellbeing SWB either improves or remains constant for the large majority of individuals as retire from the labour force. However, there are significant disparities in changes in well-being with retirement. In particular, the subset of individuals who are forced to retire early due to job loss or their own health, and who find their income in retirement is much less than expected, report marked declines in their well-being in retirement. This research also makes a methodological contribution by examining the accuracy of relative SWB measures. For the subset of individuals who retire after 2001, we use the longitudinal information in HILDA to assess the reliability of the retrospective reports of changes in SWB with contemporaneous responses.

DECEMBER 2 2011

Joe Weisenthal, Business Insider: The Entire Sovereign Debt Crisis Can Be Understood By Looking At Sweden Vs. Finland. These two charts basically explain everything. The first chart shows the yield on the Swedish 5-year bond. As you can see, it's absolutely plummeting right now. Now here's a look at its neighbor, Finland, and the yields on its 5-year bond. Basically they look identical all through the year up until November and then BAM. Finnish yields are exploding higher, right as Swedish yields are blasting lower. The only obvious difference between the two: Finland is part of the Eurozone, meaning it can't print its own money. Sweden has no such risk.

Martin S. Feldstein, NBER: The Euro and European Economic Conditions. The creation of the euro should now be recognized as an experiment that has led to the sovereign debt crisis in several countries, the fragile condition of major European banks, the high levels of unemployment, and the large trade deficits that now exist in most Eurozone countries. Although the European Central Bank managed the euro in a way that achieved a low rate of inflation, other countries both in Europe and elsewhere have also had a decade of low inflation without incurring the costs of a monetary union. The emergence of these problems just a dozen years after the start of the euro in 1999 was not an accident or the result of bureaucratic mismanagement but the inevitable consequence of imposing a single currency on a very heterogeneous group of countries, a heterogeneity that includes not only economic structures but also fiscal traditions and social attitudes.

Ryan Avent, Free Exchange Blog: Armies of the unemployed. There are several striking facts about recent movements in euro-zone labour markets. The first is the remarkable extent to which increased joblessness is due to deteriorating conditions around the periphery. Since the beginning of the year, Greek unemployment is up nearly 4 percentage points. The jobless rate in Germany, by contrast, has fallen a full percentage point over that period (see chart).

Michael D. Plante, Mine K. Yücel, Dallas Fed: Did Speculation Drive Oil Prices? Market Fundamentals Suggest Otherwise. Activity in the futures market increased appreciably in the past decade, as did the number of noncommercial traders. This rise was coincident with the rise in oil prices, leading some to hypothesize that speculation—rather than market fundamentals—drove the price of oil. The tripling of oil prices from early 2007 to mid-2008 is consistent with several market fundamentals, including increased demand from emerging markets, low elasticities of demand and reduced OPEC excess capacity. The behavior of inventories was also consistent with the reality of a tight market, not with a story of speculation-driven hoarding, whether we look at inventories above ground, below ground or floating at sea. Hence, evidence from the physical market for oil, similar to that from the futures market, is consistent with oil-market fundamentals leading to increasing oil prices before the global recession.

Philippe Bracke, IMF: How Long Do Housing Cycles Last? A Duration Analysis for 19 OECD Countries. I provide two sets of results, one pertaining to the average length and the other to the length distribution. On average, upturns are longer than downturns, but the difference disappears once the last house price boom is excluded. In terms of length distribution, upturns (but not downturns) are more likely to end as their duration increases. This duration dependence is consistent with a boom-bust view of house price dynamics, where booms represent departures from fundamentals that are increasingly difficult to sustain.

Casey Mulligan, NBER:  Rising Labor Productivity during the 2008-9 Recession. During the recession of 2008-9, labor hours fell sharply, while wages and output per hour rose.  Some, but not all, of the productivity and wage increase can be attributed to changing quality of the workforce.  The rest of the increase appears to be due to increases in production inputs other than labor hours.  All of these findings, plus the drop in consumer expenditure, are consistent with the hypothesis that labor market "distortions" were increasing during the recession and have remained in place during the slow "recovery." Producers appear to be trying to continue production with less labor, rather than cutting labor hours as a means of cutting output.

Corrado Giulietti, Martin Guzi, Martin Kahanec, Klaus F. Zimmermann, IZA: Unemployment Benefits and Immigration: Evidence from the EU. A sample of 19 European countries observed over the period 1993-2008 is used to test the hypothesis that unemployment benefit spending (UBS) is correlated with immigration flows from EU and non-EU origins. While OLS estimates reveal the existence of a moderate correlation for non-EU immigrants only, IV and GMM techniques used to address endogeneity issues yield, respectively, a much smaller and an essentially zero causal impact of UBS on immigration. All estimates for immigrants from EU origins indicate that flows within the EU are not related to unemployment benefit generosity. This suggests that the so-called "welfare migration" debate is misguided and not based on empirical evidence.

Eric A. Hanushek, Ludger Woessmann, Lei Zhang, IZA: General Education, Vocational Education, and Labor-Market Outcomes over the Life-Cycle.  Policy debates about the balance of vocational and general education programs focus on the school-to-work transition. But with rapid technological change, gains in youth employment from vocational education may be offset by less adaptability and thus diminished employment later in life. To test our main hypothesis that any relative labor-market advantage of vocational education decreases with age, we employ a difference-in-differences approach that compares employment rates across different ages for people with general and vocational education. Using micro data for 18 countries from the International Adult Literacy Survey, we find strong support for the existence of such a trade-off, which is most pronounced in countries emphasizing apprenticeship programs. Results are robust to accounting for ability patterns and to propensity-score matching.

PEW: Does America Promote Mobility As Well As Other Nations? In the United States, there is a stronger link between parental education and children’s economic, educational, and socio-emotional outcomes than in any other country investigated. An adolescent’s advantage from having high-educated parents is largest in the United States, England, and Sweden (the higher the blue bar, the greater the advantage). An adolescent’s disadvantage from having low-educated parents is largest in Germany, the United States, and England (the lower the red bar, the greater the disadvantage).

Nicholas Confessore, NYT: Policy-Making Billionaires. Over the past 30 years, as the gap between wealthy and poor grew ever wider, total philanthropic giving almost tripled, according to annual estimates published by the Giving USA Foundation and the Center on Philanthropy at Indiana University. In an age of widening partisanship and plummeting trust in government, this outpouring of philanthropy has produced a distinct breed of philanthropist: The policy-making billionaire. “What’s going on at a broader level is a sense of, ‘Hey, we can be much more effective and efficient than government in doing things’ ”

AGING AND RETIREMENT

Goulão, Catarina, Gouveia, Miguel, Toulouse School of Economics: Are we doing enough to discourage early retirement? Increasing the effective retirement age contributes to the sustainability of pension systems. However, oftentimes policies aiming at rising employment rates of older workers fall short in delaying retirement. This seems to be the case with retirement age flexibility reforms in Portugal. We analyze the recent Portuguese history of incentives to retire. For 1990-2006 we find that individuals faced very high implicit taxes on working with the result that half the workers had already left the labour force before age 65. We then look at the Social Security reforms in 2007 and find that the incentives to continue working became even smaller than they already were. We conclude that increasing the labour supply of older workers in a system with flexible retirement age needs policies with more aggressive use of penalties and bonuses than what decision makers were willing to accept.

Craig Berry, ILCUK: Gradual retirement and pensions policy. It is too often assumed that retirement is a one-off event, rather than a process. Yet there is increasing evidence that we are moving towards a process of ‘gradual retirement”. Ca 40 per cent of people would consider delaying their retirement if they could defer the state pension in return for higher payments later; yet 59 per cent are unaware that this option is already available. Ca 42 per cent of people would consider delaying their retirement if they could combine income from a work-based/employer pension and their current job; yet 66 per cent are unaware that this option is already available to many employees.

Roel M. W. J. Beetsma, Alessandro Bucciol, CESifo: Risk Sharing in Defined-Contribution Funded Pension Systems. This paper explores the introduction of collective risk-sharing elements in defined contribution pension contracts. We consider status-contingent, age-contingent and asset contingent risk-sharing arrangements. All arrangements raise aggregate welfare, as measured by equivalent variations. While working individuals hardly benefit or may even lose, retirees experience substantial welfare gains. An increase in the tax deductability of pension contributions can be beneficial for working cohorts, but comes at the cost of a reduction in aggregate welfare due to efficiency losses.