JANUARY 2012

JANUARY 27 2012

Greg Ip, Free exchange blog: Perverse austerity. Cut the deficit too aggressively, and the negative impact on growth and the rise in the cost of debt service from higher spreads could result in a higher, not lower, debt-to-GDP ratio. It is not clear if the IMF thinks that has actually happened, and it recommends caution in interpreting these results. The analysis examined behavior across countries rather than across time, and thus the results may reflect circumstances unique to 2011.Still, the findings are sobering and explain the IMF's advice that countries that have not been cut off from the markets must avoid further discretionary austerity. “Decreasing debt is a marathon, not a sprint,” observed Olivier Blanchard, the fund’s chief economist. “Going too fast will kill growth.”

Chris Dillow, Stumbling and Mumbling Blog: Is there an austerity curve? Duncan’s idea is an austerity curve: Ccutting government spending up to a certain point leads to lower deficits but beyond a certain point, the impact of lower growth and higher unemployment means that deficits get worse as the government cuts more. But the response of economies to macro policies varies over time and place, so that there are few stable coefficients. It is therefore simply not possible to know the precisely correct macro policies. Which makes the debate between big cutters and little cutters a little like arguments about how many angels dance on the head of a pin.

Fareed Zakaria, CNN Blog: Post-Communist lessons for the new Middle East. Perhaps the biggest reason for poverty-stricken nations like Egypt to pay close attention to Poland is that it is a very rare breed in today's world, especially in Europe. Poland has a strong economy - the sixth biggest in the European Union now and the only European Union country to avoid a recession altogether. None of its banks needed to be rescued. Its economy grew 4% last year, and is on track to grow 3% in 2012. Why, you'll ask. How did it survive the turmoil in the Euro Zone? One answer is that it has strong domestic demand and has been pouring money into infrastructure projects. But the real - and fortuitous - reason is that Poland has yet to be allowed in to the Euro Zone - it continues to use zlotys instead of the euro. So unlike Greece or Italy, it was able to devalue its currency to stay competitive.

Gary Gorton, Andrew Metrick, Yale: Getting up to Speed on the Financial Crisis: A One‐Weekend‐Reader’s Guide. All economists should be conversant with “what happened?” during the financial crisis of 2007‐2009. We select and summarize 16 documents, including academic papers and reports from regulatory and international agencies. This reading list covers the key facts and mechanisms in the build‐up of risk, the panics in short‐term‐debt markets, the policy reactions, and the real effects of the financial crisis.

A.C.S, Free Exhange Blog: Heads I win, tails you pay. STATE pensions in American are in trouble.  Just how underfunded they are depends on how you calculate their assets and liabilities. Some estimates suggest the unfunded liability is several times larger than all outstanding municipal debt. Many states assume that their investments will generate about an 8% annual return. States justify this assumption based on the fact that most of their assets, about 70%, are invested in equity. But whether or not stocks will return 8% is uncertain. If you invested in a well diversified equity fund over the last ten years you’d have been lucky to average 2% annually. And so some critics argue that 8% is almost certainly too high.

John Cochrane, The Grumpy Economist Blog: Demographics and stock prices. See the graph to the left, taken from the letter: M/O is the ratio of middle aged to old, and P/E is the stock market price-earnings ratio. In the 1970s, there were relatively few prime-age savers around to buy stocks, and the prices fell. Starting in the 1980s to late 1990s, boomers entered their prime saving years, bought stocks and drove the prices up. And now that the boomers are retiring, they start selling, and watch out for prices! Zheng and Mark make a pretty discouraging forecast. I'm still not convinced, however, for a few reasons.

Robert Gebeloff, Shaila Dewan, NYT Blog: What the Top 1% of Earners Majored In. Below is a chart showing the majors most likely to get into the 1 percent (excluding majors held by fewer than 50,000 people in 2010 census data). The third column shows the percentage of degree holders with that major who make it into the 1 percent. The fourth column shows the percent of the 1 percent (among college grads) that hold that major. The majors providing the best entree into the top income rank are pre-med, economics, biochemistry, zoology and biology.

Justin Wolfers, Freakonomics blog: Is Higher Income Inequality Associated with Lower Intergenerational Mobility? A lot of our political debate boils down to questions about equality of outcomes versus equality of opportunity. But it turns out that they’re pretty closely related. Take a look at the chart below, which is from a terrific recent speech (with charts!) by Alan Krueger. The horizontal axis shows the Gini coefficient, which is a summary of the degree of income inequality for each country. I think of this as a measure of inequality of outcomes. The United States sits out there on the right, which says that we have high inequality, which I bet that doesn’t surprise you.

AGING AND RETIREMENT

Maes, Marjan, Hogeschool-Universiteit Brussel: The impact of (early) retirement on the subsequent physical and mental health of the retired: a survey among general practitioners in Belgium. The objectives is to investigate, on the basis of the perceptions of general practitioners (GPs) in Belgium, the impact of (early) retirement on subsequent physical and mental health. A cross-sectional survey on the basis of a self-completed anonymous questionnaire sent at random to 120 GPs in Flanders (Belgium) to which 81 responded. According to GPs, the mere fact of retiring early may be a (very) important cause of mental health problems, in particular depressions (due to the disappearance of social networks) and deterioration of cognitive capacities. GPs claim that most physical health problems that appear after retirement, like obesity and cardiovascular diseases, are due to insufficient adaptation (in terms of food consumption and physical activities) of the retired to a new lifestyle.

Mette Gørtz, SFI Danmark: Early retirement in the day-care sector: the role of working conditions and health. This article studies the role of working conditions and health for elderly female day-care teachers’ decision to enter early retirement. Entry into retirement is analysed in a duration framework that allows for unobserved heterogeneity in the baseline hazard. Data are from a Danish longitudinal data set based on administrative register records for 1997–2006. Working conditions are measured by four indicators. First, work pressure is measured by the child-to-teacher ratio, which varies across municipalities and over time. Second, working conditions are measured by the proportion of children with a problematic social background. Third, the share of trained teachers is considered an indicator of working conditions. And fourth, the size of the institution is assessed as an indicator of working conditions. Regressions in a duration model framework show that there is no significant relationship between the child-to-teacher ratio or the size of the institution and early retirement. However, working conditions measured by the social background of the children and the share of trained day-care teachers have a significant effect on the probability of early retirement. Finally, a poor health condition is associated with a higher propensity to enter early retirement.

JANUARY 20 2012

Robert J. Shiller, Project Syndicate:  Does Austerity Promote Economic Growth?  In his classic Fable of the Bees: or, Private Vices, Publick Benefits (1724), Bernard Mandeville, the Dutch-born British philosopher and satirist, described – in verse – a prosperous society (of bees) that suddenly chose to make a virtue of austerity, dropping all excess expenditure and extravagant consumption. What then happened?

The Price of Land and Houses falls;

Mirac’lous Palaces, whose Walls,

Like those of Thebes, were rais’d by Play

Are to be let; . . . .

The building Trade is quite destroy’d

Artificers are not employ’d; . . .

Those, that remain’d, grown temp’rate strive

Not how to spend, but how to live . . .

Tim Duy, Fed Watch Blog: Is Europe About to Unravel? Lacking currency devaluation as a tool to resolve imbalances, European policymakers turned to fiscal austerity. That plan has failed, pushing nation after nation into ever deepening recession. With Greece going on its fifth year of recession, I imagine by now that Portugal, Spain, and even Italy now see the writing on the wall for themselves. Sadly, however, the alternative is exiting the Euro, which almost certainly means financial chaos for the Continent as a whole. The Eurozone is like a roach motel. You can get in, but you can't get out.

Sudeep Reddy, WSJ Blog: At One Think Tank, Two Opposing Views on the Euro-Zone Outlook. Whichever camp you’re in, the Peterson Institute for International Economics has arguments to support your view. In presentations today, four economists at the Washington think tank – two on each side – debated opposing scenarios for how the crisis will play out. In one corner are Peter Boone and Simon Johnson, who are bracing for a spectacularly ugly outcome. With a $211 trillion market for interest-rate swaps in Europe under pressure, the euro faces the risk of a serious breakdown, they say. In the other corner are Fred Bergsten and Jacob Kirkegaard, who expect more turbulence ahead but remain optimistic about the ultimate outcome. Europeans are committed to European integration, they say, and the largest euro-zone member — Germany – will protect its economic interests by keeping the currency bloc intact. (The one exception: Greece could still exit.) That will prevent the apocalyptic scenarios, they say.

Ryan Avent, Free Exchange Blog: The hangover America is recovering from the debt bust faster than European countries. Why? These transatlantic differences stem from the trajectory of private debt. Government borrowing soared everywhere after 2008 as government deficits ballooned. But in America the swelling of the public balance-sheet has mirrored a shrinking of private ones. Every category of private debt—financial, corporate and household—has fallen as a share of GDP since 2008. The financial sector’s debt is now at its 2000 level. Corporate indebtedness, never very high, has shrunk. So, more importantly, has household debt. America’s ratio of household debt to income is down by 15 percentage points from its peak in 2008, after rising by over 30 percentage points in the eight preceding years. McKinsey reckons America’s households are between a third and halfway through their debt-reduction process. They think the household-debt hangover could end by mid-2013.

Anginer, Deniz; Demirguc-Kunt, Asli, World Bank: Has the global banking system become more fragile over time? This paper examines time-series and cross-country variations in default risk co-dependence in the global banking system. The authors construct a default risk measure for all publicly traded banks using the Merton contingent claim model, and examine the evolution of the correlation structure of default risk for more than 1,800 banks in more than 60 countries. They find that there has been a significant increase in default risk co-dependence over the three-year period leading to the financial crisis. They also find that countries that are more integrated, and that have liberalized financial systems and weak banking supervision, have higher co-dependence in their banking sector. The results support an increase in scope for international supervisory co-operation, as well as capital charges for "too-connected-to-fail" institutions that can impose significant externalities.

Alan B. Krueger, CEA: The Rise and Consequences of Inequality in the United States. The rise in inequality in the United States over the last three decades  has reached the point that inequality in incomes is causing an unhealthy division in opportunities, and is a threat to our economic growth. Restoring a greater degree of fairness to the U.S. job market would be good for businesses, good for the economy, and good for the country.

Esther Duflo, NBER: Women Empowerment and Economic Development.

Women empowerment and economic development are closely related: in one direction, development alone can play a major role in driving down inequality between men and women; in the other direction, empowering women may benefit development. Does this imply that pushing just one of these two levers would set a virtuous circle in motion? This paper reviews the literature on both sides of the empowerment-development nexus, and argues that the inter-relationships are probably too weak to be self-sustaining, and that continuous policy commitment to equality for its own sake may be needed to bring about equality between men and women.

Rajashri Chakrabarti and Sarah Sutherland, NY Fed: Precarious Slopes? The Great Recession, Federal Stimulus, and New Jersey Schools. We exploit unique panel-data and trend-shift analysis to analyze how New Jersey school finances were affected during the Great Recession and the ARRA federal stimulus period. Our results show strong evidence of downward shifts in both revenue and expenditure following the recession. Federal stimulus seemed to have helped in 2010, however, both revenue and expenditure still declined. While total revenue declined, the various components of revenue did not witness symmetric changes. The infusion of funds with the federal stimulus occurred simultaneously with statistically and economically significant cuts in state and local financing, especially the former. Our results also show a compositional shift in expenditures in favor of categories that are linked most closely to instruction, while several noninstruction categories, including transportation and utilities, declined. Interestingly, budgetary stress seems to have led to significant layoffs for untenured teachers, leading to a rightward shift of the teacher salary and experience distributions.

Alexander M. Gelber, Adam Isen, NBER:  Children's Schooling and Parents' Investment in Children: Evidence from the Head Start Impact Study. Parents may have important effects on their children, but little work in economics explores how children's schooling opportunities impact parents' investment in children.  We analyze data from the Head Start Impact Study, in which a lottery granted randomly-chosen preschool-aged children the opportunity to attend Head Start.  We find that Head Start causes a substantial and significant increase in parents' involvement with their children--such as time spent reading to children, math activities, or days spent with children by fathers who do not live with their children--both during and after the period when their children are potentially enrolled in Head Start.  We discuss a variety of mechanisms that are consistent with our findings, including a simple model we present in which Head Start impacts parent involvement in part because parents perceive their involvement to be complementary with child schooling in the production of child qualities.

Sascha O Becker, Ludger Woessmann, VoxEU: Religion matters, in life and death. Does religion affect suicide? This column presents new evidence from 19th century Prussia showing that suicide rates are much higher in Protestant than in Catholic areas, and that this reflects a causal effect of Protestantism. It also suggests that economic modelling can help understand why this is so.

Stephen J. Dubner, Freakonomics Blog: What Do Hand-Washing and Financial Illiteracy Have in Common? There’s something in the human condition that somehow disconnects what is really good evidence from personal choice and habit. And I don’t know why that is. I’m not a psychiatrist; my field is internal medicine. I just have the observation. Physicians are no different.

AGING AND RETIREMENT

Petter Lundborg, Martin Nilsson, Johan Vikström, IZA: Socioeconomic Heterogeneity in the Effect of Health Shocks on Earnings: Evidence from Population-Wide Data on Swedish Workers. In this paper, we estimate socioeconomic heterogeneity in the effect of unexpected health shocks on labor market outcomes, using register-based data on the entire population of Swedish workers. We effectively exploit a Difference-in-Difference-in-Differences design, in which we compare the change in labor earnings across treated and control groups with high and low education levels. If the anticipation effects are similar for individuals with high and low education, any difference in the estimates across socioeconomic groups could plausibly be given a causal interpretation. Our results suggest a large amount of heterogeneity in the effects, in which individuals with a low education level suffer relatively more from a given health shock. These results hold across a wide range of different types of health shocks and become more pronounced with age. Our results suggest that socioeconomic heterogeneity in the effect of health shocks offers one explanation for how the socioeconomic gradient in health arises.

Alan L. Gustman, Thomas Steinmeier, Nahid Tabatabai, Michigan Retirement Research Center: How Did the Recession of 2007-2009 Affect the Wealth and Retirement of the Near Retirement Age Population in the Health and Retirement Study? This paper uses asset and labor market data from the Health and Retirement Study (HRS) to investigate how the recent "Great Recession" has affected the wealth and retirement of those in the population who were just approaching retirement age at the beginning of the recession, a potentially vulnerable segment of the working age population. The retirement wealth held by those ages 53 to 58 before the onset of the recession in 2006 declined by a relatively modest 2.8 percentage points by 2010. In more normal times, their wealth would have increased over these four years. The adverse labor market effects of the Great Recession are more modest. Although there is an increase in unemployment, that increase is not mirrored in the rate of flow out of full-time work or partial retirement. All told, the retirement behavior of the Early Boomer cohort looks similar, at least so far, to the behavior observed for members of older cohorts at comparable ages.

Tunga Kantarc, Arthur van Soest, Tilburg University: Effects of Partial and No Retirement on Health in the United States. Some studies find that retirement yields a loss in cognitive skills while others find that retirement preserves physical health. We study the amount of work hours that deteriorates or preserves the physical or mental health conditions of the elderly between 50 and 75 years old in the last eight waves (1994-2008) of the Health and Retirement Study. Deteriorating health conditions can cause employees to work fewer hours and therefore bias the effect of working part-time or full-time on health outcomes. Retirement eligibility ages are used as instruments for part-time or full-time work decisions. We also control for, possibly health related, unobserved heterogeneity across the individuals. We find that part-time and full-time workers report worse overall health and memory than full-time retirees. On the other hand, part-time and full-time workers have a much lower body weight, and part-time white collar workers have a much better word recall score. Part-time and full-time workers are also less prone to depression. We also find that health status of the elderly responds to working part-time much more than it responds to working full-time. This result suggests that the effect of the number of hours worked on health outcomes is nonlinear.

Mette Gørtz, EJA: Early retirement in the day-care sector: the role of working conditions and health. This article studies the role of working conditions and health for elderly female day-care teachers’ decision to enter early retirement. Entry into retirement is analysed in a duration framework that allows for unobserved heterogeneity in the baseline hazard. Data are from a Danish longitudinal data set based on administrative register records for 1997–2006. Working conditions are measured by four indicators. First, work pressure is measured by the child-to-teacher ratio, which varies across municipalities and over time. Second, working conditions are measured by the proportion of children with a problematic social background. Third, the share of trained teachers is considered an indicator of working conditions. And fourth, the size of the institution is assessed as an indicator of working conditions. Regressions in a duration model framework show that there is no significant relationship between the child-to-teacher ratio or the size of the institution and early retirement. However, working conditions measured by the social background of the children and the share of trained day-care teachers have a significant effect on the probability of early retirement. Finally, a poor health condition is associated with a higher propensity to enter early retirement.

JANUARY 13 2012

Satyajit Das, EconoMonitor: Europe’s Road to Nowhere (Part 1). Financially futile, economically erroneous, politically puzzling and socially irresponsible, the December 2011 European summit was a failure. Only the attending leaders and their acolytes believe otherwise. German Chancellor Angela Merkel’s post-summit homilies about the “long run”, “running a marathon” and “more Europe” rang hollow. The proposed plan is fundamentally flawed. It made no attempt to tackle the real issues – the level of debt, how to reduce it, how to meet funding requirements or how to restore growth. Most importantly there were no new funds committed to the exercise.

Stéphanie Guichard, Elena Rusticelli, OECD: Reassessing the NAIRUs after the Crisis. The financial crisis has resulted in a substantial increase in unemployment in the OECD. This paper shows that this increase has reversed the reduction in structural unemployment which has been estimated to have occurred in most OECD countries since the late 1990s. Structural unemployment is defined as a time-varying NAIRU derived from the information contained in a reduced Phillips curve equation (linking inflation to the unemployment gap) by means of a Kalman filter. The overall limited revisions in historical NAIRU estimated in 2008 after such a large labour market shock support the robustness of the OECD approach. This approach is therefore extended to almost all OECD countries. Alternative specifications of the Phillips curve are proposed for some specific groups of countries.

Waikei Raphael Lam, Kiichi Tokuoka, IMF: Assessing the Risks to the Japanese Government Bond (JGB) Market. Despite the rise in public debt, Japanese Government Bond (JGB) yields have remained low and stable, supported by steady inflows from the household and corporate sectors, high domestic ownership of JGBs, and safe-haven flows from heightened sovereign risks in Europe. Over time, however, the market’s capacity to absorb new debt will likely shrink as population ages and risk appetite recovers. In the short term, a decline in fund supply from the corporate sector, where financial surpluses are abnormally high, and spillovers from global financial distress could push up JGB yields. Fiscal reforms to reduce public debt more quickly and lengthen the maturity of government bonds will help limit these risks.

Eamonn Fingleton, NYT: The Myth of Japan’s Failure. Despite some small signs of optimism about the United States economy, unemployment is still high, and the country seems stalled. Time and again, Americans are told to look to Japan as a warning of what the country might become if the right path is not followed, although there is intense disagreement about what that path might be. But that presentation of Japan is a myth. By many measures, the Japanese economy has done very well during the so-called lost decades, which started with a stock market crash in January 1990. By some of the most important measures, it has done a lot better than the United States.

Carmen Reinhart, VoxEU: A Series of Unfortunate Events: Common Sequencing Patterns in Financial Crises. We document that the global scope and depth of the crisis that began with the collapse of the subprime mortgage market in the summer of 2007 is unprecedented in the post World War II era and, as such, the most relevant comparison benchmark is the Great Depression (or the Great Contraction, as dubbed by Friedman and Schwartz, 1963) of the 1930s. Some of the similarities between these two global episodes are examined but the analysis of the aftermath of severe financial crises is extended to also include the most severe post-WWII crises as well. As to the causes of these great crises, we focus on those factors that are common across time and geography. We discriminate between root causes of the crises, recurring crises symptoms, and common features (such as misguided financial regulation or inadequate supervision) which serve as amplifiers of the boom-bust cycle. There are recurring temporal patterns in the boom-bust cycle and their broad sequencing is analyzed.

Steven J. Davis, Till M. von Wachter, NBER: Recessions and the Cost of Job Loss. We develop new evidence on the cumulative earnings losses associated with job displacement, drawing on longitudinal Social Security records for U.S. workers from 1974 to 2008. In present value terms, men lose an average of 1.4 years of pre-displacement earnings if displaced in mass-layoff events that occur when the national unemployment rate is below 6 percent. They lose a staggering 2.8 years of pre-displacement earnings if displaced when the unemployment rate exceeds 8 percent. These results reflect discounting at a 5% annual rate over 20 years after displacement. We also document large cyclical movements in the incidence of job loss and job displacement and present evidence on how worker anxieties about job loss, wage cuts and job opportunities respond to contemporaneous economic conditions.

Matthew Yglesias, Moneybox Blog: Mitt Romney Says Concern About Inequality Is Just "Envy". Mitt Romney explained that people talk about inequality because they're envious: “You know, I think it’s about envy. I think it’s about class warfare. When you have a President encouraging the idea of dividing America based on the 99 percent versus 1 percent—and those people who have been most successful will be in the 1 percent—you have opened up a whole new wave of approach in this country which is entirely inconsistent with the concept of one nation under God. The American people, I believe in the final analysis, will reject it.” Of course there is envy in America, but there's also spite. And I think you see some of it in Romney's reply. He has a lot of money, personally. That money is very useful to him in a number of ways.

Jérôme Adda, Christian Dustmann, Katrien Stevens, IZA: The Career Costs of Children. This paper analyzes the life-cycle career costs associated with child rearing and decomposes their effects into unearned wages (as women drop out of the labor market), loss of human capital, and selection into more child-friendly occupations. We estimate a dynamic life-cycle model of fertility, occupational choice, and labor supply using detailed survey and administrative data for Germany for numerous birth cohorts across different regions. We use this model to analyze both the male-female wage gap as it evolves from labor market entry onward and the effect of pro-fertility policies. We show that a substantial portion of the gender wage gap is explainable by realized and expected fertility and that the long-run effect of policies encouraging fertility are considerably lower than the short-run effects typically estimated in the literature.

Peder J. Pedersen, IZA: Immigration and Welfare State Cash Benefits: The Danish Case. The purpose in this paper is to summarize existing evidence on welfare dependence among immigrants in Denmark and to supply new evidence with focus on the most recent years. Focus is on immigrants from non-western countries. The paper contains an overview of the background regarding immigration in recent decades followed by a survey of relevant benefit programmes in the Danish welfare state. Existing studies focus on both macro analyses of the overall impact from immigration on the public sector budget and on micro oriented studies with focus on specific welfare programs. Existing studies focus on the importance for welfare dependence of demographic variables, on the big variation between countries of origin and on the importance of cyclical factors at time of entry and during the first years in the new country. Evidence from the most recent years reinforce the importance of aggregate low unemployment in contrast to fairly small effects found from policy changes intending to! influence the economic incentives between welfare and a job for immigrants.

Marco Caliendo, Steffen Künn, Ricarda Schmidl, IZA: Fighting Youth Unemployment: The Effects of Active Labor Market Policies. We use administrative data on youth unemployment entries in 2002 and analyze the short- and long-term impacts for a variety of different programs. With informative data at hand we apply inverse probability weighting, thereby accounting for a dynamic treatment assignment and cyclical availability of programs. Our results indicate positive long-term employment effects for nearly all measures aimed at labor market integration. Measures aimed at integrating youths in apprenticeships are effective in terms of education participation, but fail to show any impact on employment outcomes until the end of our observation period. Public sector job creation is found to ! be harmful for the medium-term employment prospects and ineffective in the long-run. Our analysis further indicates that the targeting of German ALMP systematically ignores low-educated youths as neediest of labor market groups. While no employment program shows a positive impact on further education participation for any subgroup, the employment impact of participation is often significantly lower for low-educated youths.

John P. Papay, Martin R. West, Jon B. Fullerton, Thomas J. Kane, NBER:  Does Practice-Based Teacher Preparation Increase Student Achievement? Early Evidence from the Boston Teacher Residency. The Boston Teacher Residency is an innovative practice-based preparation program in which candidates work alongside a mentor teacher for a year before becoming a teacher of record in Boston Public Schools. Initially, BTR graduates for whom value-added performance data are available are no more effective at raising student test scores than other novice teachers in English language arts and less effective in math.  The effectiveness of BTR graduates in math improves rapidly over time, however, such that by their fourth and fifth years they out-perform veteran teachers.  Simulations of the program's overall impact through retention and effectiveness suggest that it is likely to improve student achievement in the district only modestly over the long run.

 

Fernando Ferreira, Joseph Gyourko, NBER:  Does Gender Matter for Political Leadership? The Case of U.S. Mayors. What are the consequences of electing a female leader for policy and political outcomes? We answer this question in the context of U.S. cities, where women's participation in mayoral elections increased from negligible numbers in 1970 to about one-third of the elections in the 2000's. We use a novel data set of U.S. mayoral elections from 1950 to 2005, and apply a regression discontinuity design to deal with the endogeneity of female candidacy to city characteristics.  In contrast to most research on the influence of female leadership, we find no effect of gender of the mayor on policy outcomes related to the size of local government, the composition of municipal spending and employment, or crime rates.  While female mayors do not implement different policies, they do appear to have higher unobserved political skills, as they have a 6-7 percentage point higher incumbent effect than a comparable male.  But we find no evidence of political spillovers:  exogenously electing a female mayor does not change the long run political success of other female mayoral candidates in the same city or of female candidates in local congressional elections.

Cahit Guven, Wang-Sheng Lee, IZA: Height and Cognitive Function among Older Europeans: Do People from "Tall" Countries Have Superior Cognitive Abilities? Previous research has found that height is correlated with cognitive functioning at older ages. It therefore makes sense to ask a related question: do people from countries where the average person is relatively tall have superior cognitive abilities on average? Using data from the Survey of Health, Ageing, and Retirement in Europe (SHARE), we find empirical evidence that this is the case, even after controlling for self-reported childhood health, self-reported childhood abilities, parental characteristics and education. We find that people from countries with relatively tall people, such as Denmark and the Netherlands, have on average superior cognitive abilities compared to people from countries with relatively shorter people, such as Italy and Spain. We exploit variations in height trends due to nutritional deprivation in World War II in Europe and use an instrumental variable analysis to further estimate the potential impact of height on cognitive function. We find some suggestive evidence that a causal link from height to cognitive outcomes could be operating via nutrition and not via educational attainment.

AGING AND RETIREMENT

Damian Paletta, Dionne Searcey, WSJ: Jobless Tap Disability Fund. The prolonged economic slump has fueled a surge in applications for Social Security disability benefits, with many desperate Americans seeking refuge in the program as a last resort after their unemployment insurance and savings run out. Two new studies, one of them co-authored by the White House's top economist, show a correlation between when people seek Social Security disability payments and when their unemployment benefits are exhausted. Some economists say that connection shows many people now view the system as an extended unemployment program

Eva Garcia-Moran, Zoe Kuehn, European University Institute: With Strings Attached: Grandparent-Provided Child care, Fertility, and Female Labor Market Outcomes. Grandparents are an important source of child care. According to data from the 2^nd wave of the Survey of Health, Ageing and Retirement in Europe (SHARE), between 23% (Denmark) and 70% (Italy) of grandparents take care of their grandchildren age ten or younger on a daily or weekly basis. In the Netherlands, Belgium, and Switzerland more than 40% of grandparents take care of their small grandchildren each week, while in Italy, Greece, and Poland more than 40% of grandparents provide daily care for grandchildren age ten or younger. Similar to any other form of child care, availability of grandparent-provided child care affects fertility and labor market decisions of women positively. We find that women in Germany, residing close to parents or in-laws are more likely to have children and that as mothers they are more likely to hold a regular part-or fulltime job.

Benoit Dostie, Pierre Thomas Léger, IZA: Firm-Sponsored Classroom Training: Is It Worth It for Older Workers? We use longitudinal linked employer-employee data and find that the probability of participating in firm-sponsored classroom training diminishes rapidly for workers aged 45 years and older. Although the standard human capital investment model predicts such a decline, we also consider the possibility that returns to training decline with age. Taking into account endogenous training decisions, we find that the training wage premium diminishes only slightly with age. However, estimates of the impact of training on productivity decrease dramatically with age, suggesting that incentives for firms to invest in classroom training are much lower for older workers.