DECEMBER 11 2015

Ben S. Bernanke, Brookings: Fed emergency lending. We faced a serious stigma problem during the recent crisis, and, collectively, the reforms to the Fed’s lending authorities have probably made the problem worse. An example is the effect of new reporting requirements. Dodd-Frank requires that the identities of all borrowers (including non-emergency borrowers through the discount window) be disclosed within two years, or within one year after the termination of a lending program, whichever is earlier. In addition, the rule approved this week confirms that the Fed must provide detailed information to Congress about broad-based lending programs, including the names of borrowers, within seven days—although, very importantly, the names of borrowers can be kept confidential at the request of the Fed chairman.  By increasing the risk of early disclosure of borrowers’ identities, these requirements will probably reduce the willingness of firms to borrow from the Fed in a panic and thus potentially impair the effectiveness of the government’s crisis response.

Olivier Blanchard, Jonathan D. Ostry, Atish R. Ghosh, Marcos Chamon, IMF: Are Capital Flows Expansionary or Contractionary? It Depends What Kind. Theory suggests that, for a given policy rate, bond inflows lead to currency appreciation and are contractionary, while non-bond inflows lead to an appreciation but also to a decrease in the cost of borrowing, and thus may be expansionary. The empirical evidence is broadly supportive. Exogenous bond inflows appear to have on average small negative effects on output, while exogenous non-bond inflows appear to have a positive effect. Our analysis, if correct, has important implications for the use of policy tools to deal with inflows. Different combinations of tools must be used depending on the nature of the flows.

Ryan A. Decker et al, NBER:  Where Has All The Skewness Gone? The Decline In High-Growth (Young) Firms In The U.S. The pace of business dynamism and entrepreneurship in the U.S. has declined over recent decades. We show that the character of that decline changed around 2000. Since 2000 the decline in dynamism and entrepreneurship has been accompanied by a decline in high-growth young firms. Prior research has shown that the sustained contribution of business startups to job creation stems from a relatively small fraction of high-growth young firms. The presence of these high-growth young firms contributes to a highly (positively) skewed firm growth rate distribution. In 1999, a firm at the 90th percentile of the employment growth rate distribution grew about 31 percent faster than the median firm. Moreover, the 90-50 differential was 16 percent larger than the 50-10 differential reflecting the positive skewness of the employment growth rate distribution. We show that the shape of the firm employment growth distribution changes substantially in the post-2000 period. By 2007, the 90-50 differential was only 4 percent larger than the 50-10, and it continued to exhibit a trend decline through 2011. The reflects a sharp drop in the 90th percentile of the growth rate distribution accounted for by the declining share of young firms and the declining propensity for young firms to be high-growth firms.

Matteo Picchio, Sigrid Suetens, Jan van Ours, VOX: Labour supply effects of winning a lottery. The impact of wage and income shocks on labour supply is difficult to measure. Some studies therefore use lottery prizes as an exogenous shock on income. This column looks at the effect of the size of the prize won on employment status and salaried earnings, using data from Dutch lotteries. The findings show that lottery prizes lead to a reduction of working hours but not to a decrease in the employment rate.

Yana Galleny, Northwestern University: The Gender Productivity Gap. Using Danish matched employer-employee data, this paper estimates the relative productivity of men and women and finds that the gender “productivity gap” is 12 percent–seventy five percent of the 16 percent residual pay gap can be accounted for by productivity differences between men and women. I measure the productivity gap by estimating the efficiency units lost in a firm-level production function if a laborer is female, holding other explanatory covariates such as age, education, experience, and hours worked constant. To study the mechanisms behind the 4 percent gap in pay that is unexplained by productivity, I use data on parenthood and age. Mothers are paid much lower wages than men, but their estimated productivity gap completely explains their pay gap. In contrast, women without children are estimated to be as productive as men but they are not compensated at the same rate as men. The decoupling of pay and productivity for women without children happens during their prime-child bearing years.

Eric A. Hanushek, Jens Ruhose, Ludger Woessmann, NBER: Economic Gains for U.S. States from Educational Reform. There is limited existing evidence justifying the economic case for state education policy. Using newly-developed measures of the human capital of each state that allow for internal migration and foreign immigration, we estimate growth regressions that incorporate worker skills. We find that educational achievement strongly predicts economic growth across U.S. states over the past four decades. Based on projections from our growth models, we show the enormous scope for state economic development through improving the quality of schools. While we consider the impact for each state of a range of educational reforms, an improvement that moves each state to the best-performing state would in the aggregate yield a present value of long-run economic gains of over four times current GDP.

Pernilla Andersson Joona, Alma W. Lanninger, Marianne Sundström, IZA: Improving the Integration of Refugees: An Early Evaluation of a Swedish Reform. This paper is an early evaluation of the Swedish Establishment Reform which was enacted in 2010 with the goal of facilitating and speeding up the integration of refugees and their family into the labor market and the society. Our approach is to compare the outcomes of the treatment group, which took part in establishment activities and arrived between December 1, 2010 and December 31, 2011, to those of the comparison group, which arrived in the eleven months preceding the Reform and participated in municipal introduction programs, controlling for a rich set of observables, including country of birth and date of residence permit. Outcomes are measured in terms of employment and earnings in 2012 for the treatment group and in 2011 for the comparison group. We find no significant difference in employment or earnings between the treatment group and the comparison group

David Halpern, The Behavioural Insights Team (BIT): Can psychology help reduce the gap between the rich and poor kids? It is perhaps unsurprising to find that the link between children’s test scores at age 11 and their likelihood of getting a degree is swamped by family income. Putnam points out that a swath of variables including income and capital inequality, associational life, intermarriage by class, progressivity of taxation, and so on, all showed a steady rise in the first two-thirds of the twentieth century in the USA, before all falling from the mid-1960s. He argues that something big happened in society that led to these seismic changes. He also notes that the economic indicators lag the social ones, strongly suggesting that the causality runs from socio-political to economic, not the other way around. Can we identify the subtle social-psychological pathways involved, and to try to do something about them? A glimpse into one such attempt has just been published in a great new special section in Perspectives on Psychological Science, in which APS boldly makes the case for a “Council of Psychological Science Advisors”. It includes pieces on child development, schooling, public health and other issues, each combining latest research with specific policy suggestions.