Yuliya Demyanyk et
al., Cleveland FED: Does Fiscal Stimulus Work When Recessions Are Caused by Too
Much Private Debt? We argue that
fiscal stimulus funded by public debt is effective for increasing economic
activity and employment even in recessions that are caused by overborrowing in
the private sector. We analyze the impact of government spending on local
economies between 2007 and 2009 and find evidence that the fiscal multiplier is
higher in geographical areas characterized by higher individual household debt.
The higher multiplier in those areas might be attributed to a direct increase
in both household consumption and local economic slack.
George J. Borjas,
The Politico: The Case for Extreme Immigrant Vetting. It’s a practice as
American as apple pie—and for good reason. In his major foreign policy speech earlier this week, Donald Trump
explained how he would expand the “ideological” vetting of immigrants who want
to come to the United States. “The time is overdue to develop a new screening
test for the threats we face today,” he said. “I call it extreme vetting. As
with practically all of Trump’s policy statements, the over-the-top commentary
came swiftly. Over at the Washington Post an opinionator opined that Trump’s
ideas were crazier than crazy. At MSNBC a commentator commented that “this is
the single most un-American thing I have ever heard in my life.” If all those
pundits had bothered to do just a couple of minutes of googling before
reacting, they would have discovered that immigrant vetting, and even extreme
immigrant vetting, has a very long tradition in American history. Since before
the founding even, U.S. policies about whom the country chooses to welcome and
reject have changed in response to changing conditions. As early as 1645, the
Massachusetts Bay Colony prohibited the entry of poor or indigent persons. By
the early 20th century, the country was filtering out people who had “undesirable”
traits, such as epileptics, alcoholics and polygamists.
Emily Breza,
Supreet Kaur, Yogita Shamdasani, NBER: The Morale Effects of Pay Inequality. The idea that worker utility is affected by co-worker
wages has potentially broad labor market implications. In a month-long
experiment with Indian manufacturing workers, we randomize whether co-workers
within production units receive the same flat daily wage or different wages
(according to baseline productivity rank). For a given absolute wage, pay
inequality reduces output and attendance by 0.24 standard deviations and 12%,
respectively. These effects strengthen in later weeks. Pay disparity also
lowers co-workers’ ability to cooperate in their self-interest. However, when
workers can clearly observe productivity differences, pay inequality has no
discernible effect on output, attendance, or group cohesion.
Stefan Pichler,
Nicolas R. Ziebarth, NBER: The Pros and Cons of Sick Pay Schemes: Testing for
Contagious Presenteeism and Noncontagious Absenteeism Behavior. This paper provides an analytical framework and uses
data from the US and Germany to test for the existence of contagious
presenteeism and negative externalities in sickness insurance schemes. The
first part exploits high-frequency Google Flu data and the staggered
implementation of U.S. sick leave reforms to show in a reduced-from framework
that population-level influenza-like disease rates decrease after employees
gain access to paid sick leave. Next, a simple theoretical framework provides
evidence on the underlying behavioral mechanisms. The model theoretically
decomposes overall behavioral labor supply adjustments ('moral hazard') into
contagious presenteeism and noncontagious absenteeism behavior and derives
testable conditions. The last part illustrates how to implement the model
exploiting German sick pay reforms and administrative industry-level data on
certified sick leave by diagnoses. It finds that the labor supply elasticity
for contagious diseases is significantly smaller than for noncontagious
diseases. Under the identifying assumptions of the model, in addition to the
evidence from the U.S., this finding provides indirect evidence for the
existence of contagious presenteeism.
Jonathan T.
Rothwell, Gallup: Explaining Nationalist Political Views: The Case of Donald
Trump. The 2016 US presidential nominee Donald Trump has
broken with the policies of previous Republican Party presidents on trade,
immigration, and war, in favor of a more nationalist and populist platform.
Using detailed Gallup survey data for a large number of American adults, I
analyze the individual and geographic factors that predict a higher probability
of viewing Trump favorably and contrast the results with those found for other
candidates. The results show mixed evidence that economic distress has motivated
Trump support. His supporters are less educated and more likely to work in blue
collar occupations, but they earn relative high household incomes, and living
in areas more exposed to trade or immigration does not increase Trump support.
There is stronger evidence that racial isolation and less strictly economic
measures of social status, namely health and intergenerational mobility, are
robustly predictive of more favorable views toward Trump, and these factors
predict support for him but not other Republican presidential candidates.
Melvin Sanicas,
Project Syndicate: Vaccines for an Aging Population. Thanks to child immunization programs, fewer
children die each year from vaccine-preventable diseases. A similar,
concentrated effort is now needed to produce similar benefits for adults,
especially the elderly. By viewing vaccination as a lifelong priority, we can
help people remain active and productive for as long as possible, benefiting
them, their communities, and the world.
Greg Kaplan, Sam
Schulhofer-Wohl, NBER: Inflation at the Household Level. We use scanner data to estimate inflation rates at
the household level. Households' inflation rates are remarkably heterogeneous,
with an interquartile range that varies between 6.2 and 9.0 percentage points
on an annual basis. Most of the heterogeneity comes not from variation in
broadly defined consumption bundles but from variation in prices paid for the
same types of goods — a source of variation that previous research has not
measured. The entire distribution of household inflation rates shifts in
parallel with aggregate inflation. Deviations from aggregate inflation exhibit
only slightly negative serial correlation within each household over time,
implying that the difference between a household's price level and the
aggregate price level is persistent. Together, the large cross-sectional
dispersion and low serial correlation of household-level inflation rates mean
that almost all of the variability in a household's inflation rate over time
comes from variability in household-level prices relative to average prices for
the same goods, not from variability in the aggregate inflation rate. We
provide a characterization of the stochastic process for household inflation
that can be used to calibrate models of household decisions.
Wolfgang Keller,
Hâle Utar, NBER:International Trade and Job Polarization: Evidence at the
Worker-Level. This paper examines the role
of international trade for job polarization, the phenomenon in which employment
for high- and low-wage occupations increases but mid-wage occupations decline.
With employer-employee matched data on virtually all workers and firms in
Denmark between 1999 and 2009, we use instrumental-variables techniques and a
quasi-natural experiment to show that import competition is a major cause of
job polarization. Import competition with China accounts for about 17% of the
aggregate decline in mid-wage employment. Many mid-skill workers are pushed
into low-wage service jobs while others move into high-wage jobs. The direction
of movement, up or down, turns on the skill focus of workers’ education.
Workers with vocational training for a service occupation can avoid moving into
low-wage service jobs, and among them workers with information-technology
education are far more likely to move into high-wage jobs than other workers.
Angus Deaton,
Project Syndicate: Rethinking Robin Hood. Huge strides have undoubtedly been made in reducing global poverty,
more through growth and globalization than through aid from abroad. While
impressive and wholly welcome, poverty reduction has not come without a cost.
The globalization that has rescued so many in poor countries has harmed some
people in rich countries, as factories and jobs migrated to where labor is
cheaper. This seemed to be an ethically acceptable price to pay, because those
who were losing were already so much wealthier (and healthier) than those who
were gaining. Globalization is less splendid for those who not only don’t reap
its benefits, but suffer from its impact. We have long known that less-educated
and lower-income Americans, for example, have seen little economic gain for four
decades, and that the bottom end of the US labor market can be a brutal
environment. But just how badly are these Americans suffering from
globalization? Are they much better off than the Asians now working in the
factories that used to be in their hometowns?
Jonas Helgertz,
Kirk Scott, Christopher D. Smith, IZA:
Parents’ years in Sweden and children’s educational performance. This paper assesses the intergenerational effect of
immigrant parents’ incorporation experiences, measured as time in Sweden, on
the educational performance of their children, using full Swedish population
registry data for 22 cohorts. Employing family fixed-effects, we examine final
course grades and national standardized test scores in Swedish and math by
parents’ country of origin. Results show a positive effect of parents’ time in
Sweden on their children’s performance in Swedish, but not for math
performance. These results demonstrate the importance of parents’ linguistic
acculturation on their children’s educational performance.
OECD: Equations
and Inequalities - Making Mathematics Accessible to All. More than ever, students need to engage with
mathematical concepts, think quantitatively and analytically, and communicate
using mathematics. All these skills are central to a young person’s
preparedness to tackle problems that arise at work and in life beyond the classroom.
But the reality is that many students are not familiar with basic mathematics
concepts and, at school, only practice routine tasks that do not improve their
ability to think quantitatively and solve real-life, complex problems. One way
forward is to ensure that all students spend more “engaged” time learning core
mathematics concepts and solving challenging mathematics tasks. The opportunity
to learn mathematics content – the time students spend learning mathematics
topics and practising maths tasks at school – can accurately predict
mathematics literacy. Differences in students’ familiarity with mathematics
concepts explain a substantial share of performance disparities in PISA between
socio-economically advantaged and disadvantaged students. Widening access to
mathematics content can raise average levels of achievement and, at the same
time, reduce inequalities in education and in society at large.
Valerie Wilson,
EPI: People of color will be a majority of the American working class in 2032. This estimate, based on long-term labor force
projections from the Bureau of Labor Statistics and trends in college
completion by race and ethnicity, is 11 years sooner than the Census Bureau
projection for the overall U.S. population, which becomes “majority-minority”
in 2043. Wage stagnation is a universal problem for the working
class, regardless of race, ethnicity, or gender. This is an area of immense
common ground, because in order to deal with class inequality (a cause of wage
stagnation), we have to deal with racial disparities. At the same time,
reducing racial inequality means also addressing class inequality.
Lawrence H.
Summers: The economic consequences of a Trump win would be severe. What I find surprising is that US and global markets
and financial policymakers seem much less sensitive to “Trump risk” than they
are to “Brexit risk”. Options markets suggest only modestly elevated volatility
in the period leading up to the presidential election. While every Fed watcher
comments on the implications of Brexit for the central bank, few, if any,
comment on the possible consequences of a victory for Mr Trump in November.
Yet, as great as the risks of Brexit are to the British economy, I believe the
risks to the US and global economies of Mr Trump’s election as president are
far greater. If he is elected, I would expect a protracted recession to begin
within 18 months. The damage would be felt far beyond the United States.
Chad Syverson,
NBER: Challenges to
Mismeasurement Explanations for the U.S. Productivity Slowdown. Labor productivity in the United States—defined as
total output divided by total hours of labor—has been increasing for over a
century and continues to increase today. However, its growth rate has fallen.
One explanation for this phenomenon focuses on measurement difficulties, in
particular the possibility that current tools for measuring economic growth do
not fully capture recent advances in the goods and services associated with
digital communications technology. Mismeasurement of the prices and quantities
of digital goods and services cannot account for the decline in the growth of
labor productivity.
Torben M. Andersen, Silvia Migali, IZA: Migrant
Workers and the Welfare State. There is
wide concern that migration flows may undermine the financial viability of
generous welfare arrangements. The discussion focuses on welfare arrangements
as attractors of migrants, suggesting that the issue does not pertain to
migrant workers. However, this overlooks how welfare arrangements affect
return-migration in case of social events like job loss. Importantly, migrants
are shown to be self-selected in a way affecting both migration and
return-migration. Two migration regimes prevail. In one, with relatively low
benefits, unemployed workers return, while in the other some stay. Importantly,
the stay or return migration decision is more sensitive to welfare generosity
than the migration decision.
Umut Özek, David
N. Figlio, NBER: Cross-Generational Differences in Educational Outcomes in the
Second Great Wave of Immigration. We make use of a new data source – matched birth records and
longitudinal student records in Florida – to study the degree to which student
outcomes differ across successive immigrant generations. We find evidence
suggesting that early-arriving first generation immigrants perform better than
do second generation immigrants, and second generation immigrants perform
better than third generation immigrants. Among first generation immigrants, the
earlier the arrival, the better the students tend to perform. These patterns of
findings hold for both Asian and Hispanic students, and suggest a general
pattern of successively reduced achievement – beyond a transitional period for
recent immigrants – in the generations following the generation that immigrated
to the United States.
Bjørn Lomborg,
Project Syndicate: The Evidence on Education Reforms. It is almost universally agreed that more education
is good for society. But it turns out that some popular educational policies
achieve very little, while others that are often overlooked can make a huge
difference. Whether for Bangladesh or elsewhere, the real lessons to be taken
away from this research is that we need to look past trendy policies like
adding technology to classrooms. The key to educational progress is to focus on
interventions backed by credible scientific evidence.
Chenkai Wu,
Michelle C Odden, Gwenith G Fisher, Robert S Stawski, JECH: Association of
retirement age with mortality: a population-based longitudinal study among
older adults in the USA. On the basis of
the Health and Retirement Study, 2956 participants who were working at baseline
(1992) and completely retired during the follow-up period from 1992 to 2010
were included. Healthy retirees (n=1934) were defined as individuals who
self-reported health was not an important reason to retire. Over the study
period, 234 healthy and 262 unhealthy retirees died. Among healthy retirees, a
1-year older age at retirement was associated with an 11% lower risk of
all-cause mortality (95% CI 8% to 15%), independent of a wide range of
sociodemographic, lifestyle and health confounders. Similarly, unhealthy
retirees (n=1022) had a lower all-cause mortality risk when retiring later (HR
0.91, 95% CI 0.88 to 0.94). None of the sociodemographic factors were found to
modify the association of retirement age with all-cause mortality.
Efraim Benmelech,
Esteban F. Klor, NBER: What Explains the Flow of Foreign Fighters to ISIS? This paper provides the first systematic analysis of
the link between economic, political, and social conditions and the global phenomenon
of ISIS foreign fighters. We find that poor economic conditions do not drive
participation in ISIS. In contrast, the number of ISIS foreign fighters is
positively correlated with a country's GDP per capita and Human Development
Index (HDI). In fact, many foreign fighters originate from countries with high
levels of economic development, low income inequality, and highly developed
political institutions. Other factors that explain the number of ISIS foreign
fighters are the size of a country's Muslim population and its ethnic
homogeneity. Although we cannot directly determine why people join ISIS, our
results suggest that the flow of foreign fighters to ISIS is driven not by
economic or political conditions but rather by ideology and the difficulty of
assimilation into homogeneous Western countries.
Gauti B.
Eggertsson, Neil R. Mehrotra, Sanjay R. Singh, Lawrence H. Summers, NBER: A
Contagious Malady? Open Economy Dimensions of Secular Stagnation. Conditions of secular stagnation - low interest
rates, below target inflation, and sluggish output growth - characterize much
of the global economy. We consider an overlapping generations, open economy
model of secular stagnation, and examine the effect of capital flows on the
transmission of stagnation. In a world with a low natural rate of interest,
greater capital integration transmits recessions across countries as opposed to
lower interest rates. In a global secular stagnation, expansionary fiscal
policy carries positive spillovers implying gains from coordination, and fiscal
policy is self-financing. Expansionary monetary policy, by contrast, is
beggar-thy-neighbor with output gains in one country coming at the expense of
the other. Similarly, we find that competitiveness policies including
structural labor market reforms or neomercantilist trade policies are also
beggar-thy-neighbor in a global secular stagnation.
Mikhail Golosov,
Guido Menzio, Princeton University. Agency Business Cycles. We propose a new business cycle theory. Firms need to
randomize over firing or keeping workers who have performed poorly in the past,
in order to give them an ex-ante incentive to exert effort. Firms have an
incentive to coordinate the outcome of their randomizations, as coordination
allows them to load the firing probability on states of the world in which it
is costlier for workers to become unemployed and, hence, allows them to reduce
overall agency costs. In the unique equilibrium, firms use a sunspot to coordinate
the randomization outcomes and the economy experiences endogenous and stochastic
aggregate fluctuations.
Nicola
Fuchs-Schündeln, Paolo Masella, VOX: Long-Lasting effects of socialist
education: Evidence from the German Democratic Republic. There are strong links between the nature of
education in a country and its political institutions, and an individual’s
education can impact their lifetime labour market choices. This column examines
how being educated under a socialist regime impacts individuals in a free
labour market. Using data on students from East and West Germany in the 1970s,
it finds that a socialist regime education led to a larger spread in labour
market outcomes – more of these individuals were not employed, but conditional
on being employed, had higher wages and a higher probability of achieving a
professional status in the East.
Iliev R., Axelrod
R., PubMed.gov:Does Causality Matter More Now? Increase in the Proportion of
Causal Language in English Texts. The vast majority of the work on culture and cognition has focused on
cross-cultural comparisons, largely ignoring the dynamic aspects of culture. In
this article, we provide a diachronic analysis of causal cognition over time.
We hypothesized that the increased role of education, science, and technology
in Western societies should be accompanied by greater attention to causal
connections. To test this hypothesis, we compared word frequencies in English
texts from different time periods and found an increase in the use of causal
language of about 40% over the past two centuries. The observed increase was
not attributable to general language effects or to changing semantics of causal
words. We also found that there was a consistent difference between the 19th
and the 20th centuries, and that the increase happened mainly in the 20th
century.
Ivan G. Lopez
Cruz, Sebastian Galiani, Gustavo Torrens, VOX: Stirring up a hornets’ nest:
Geographic distribution of crime. A large empirical literature has revealed the effects of preventative
and punitive measures on crime. This column examines the effects of police
deployment strategies, comparing geographically concentrated protection with
evenly dispersed protection across a city. The results suggests that when
considering changes in the geographic distribution of police forces, we should
take into account the effects on house prices and on reallocation of the
population, as well as the overall effect on crime in the entire city.
Tim Harford, The
Undercover Economist, The odds are you won’t know when to quit. Do we tend to quit too soon or quit too late? Are we
too stubborn or not determined enough? There has been much excitement recently
around the idea of “grit” — a personality trait representing commitment to and
enthusiasm for long-term goals, championed by psychologist Angela Duckworth.
She argues, plausibly, that grit is more important than talent in predicting a
successful life. The idea is appealing in principle but one must ask what
Duckworth’s brief “grit” questionnaire is really measuring. While Duckworth’s
work suggests that perseverance is vital, other psychological research suggests
that we sometimes persevere when we should not. Nobel laureate Daniel Kahneman,
with the late Amos Tversky, discovered a tendency called “loss aversion”. Loss
aversion is a disproportionate dislike of losses relative to gains, and it can
lead us to cling on pig-headedly to bad decisions because we hate to stop
playing when we’re behind.
Atif Mian, Amir
Sufi, NBER: Who Bears the Cost of Recessions? The Role of House Prices and
Household Debt. This chapter reviews
empirical estimates of differential income and consumption growth across
individuals during recessions. Most existing studies examine the variation in
income and consumption growth across individuals by sorting on ex ante or
contemporaneous income or consumption levels. We build on this literature by
showing that differential shocks to household net worth coming from elevated
household debt and the collapse in house prices play an underappreciated role.
Using zip codes in the United States as the unit of analysis, we show that the
decline in numerous measures of consumption during the Great Recession was much
larger in zip codes that experienced a sharp decline in housing net worth. In
the years prior to the recession, these same zip codes saw high house price
growth, a substantial expansion of debt by homeowners, and high consumption
growth. We discuss what models seem most consistent with this striking pattern
in the data, and we highlight the increasing body of macroeconomic evidence on
the link between household debt and business cycles. Our main conclusion is
that housing and household debt should play a larger role in models exploring
the importance of household heterogeneity on macroeconomic outcomes and
policies.
Roger Backhouse,
Beatrice Cherrier, University of Birmingham: 'It's Computerization, Stupid!'
The Spread of Computers and the Changing Roles of Theoretical and Applied
Economics. This paper
challenges the widely held notion that the developments in computing are
sufficient to explain the recent turn to applied economics. Developments in
computer hardware were undoubtedly important. Yet, economists' appropriation of
the new techniques allowed by computerization were highly selective, and
influenced by the development of software and ties with other scientific
communities, by the availability of business and governmental data, by
salesmanship to policy-makers, and by how epistemologically acceptable these
approaches were made to other economists. In particular, theoretical work was
not be transformed by computers the way it was in physics or biology. We
conjecture that the most profound effect of the increased availability of
computers may have been to challenge the demarcation between theory and applied
work.
Tomi Kyyrä, Juha Tuomala, IZA: Does Experience Rating
Reduce Disability Inflow? This study
explores whether the experience rating of employers’ disability insurance premiums
affects the inflow of older employees to disability benefits in Finland. To
identify the causal effect of experience rating, we exploit a pension reform
that extended the coverage of the experience-rated premiums. The results show
that a new disability benefit claim can cause substantial cost to the former
employer through an increased premium. Nonetheless, we find no evidence of the
significant effects of experience rating on the disability inflow. The lack of
the behavioral effects may be due to the complexity of experience rating
calculations and/or limited employer awareness.
Scott E. Carrell,
Mark Hoekstra, Elira Kuka, NBER: The Long-Run Effects of Disruptive Peers. A large and growing literature has documented the
importance of peer effects in education. However, there is relatively little
evidence on the long-run educational and labor market consequences of childhood
peers. We examine this question by linking administrative data on elementary school
students to subsequent test scores, college attendance and completion, and
earnings. To distinguish the effect of peers from confounding factors, we
exploit the population variation in the proportion of children from families
linked to domestic violence, who were shown by Carrell and Hoekstra (2010,
2012) to disrupt contemporaneous behavior and learning. Results show that
exposure to a disruptive peer in classes of 25 during elementary school reduces
earnings at age 26 by 3 to 4 percent. We estimate that differential exposure to
children linked to domestic violence explains 5 to 6 percent of the rich-poor
earnings gap in our data, and that removing one disruptive peer from a
classroom for one year would raise the present discounted value of classmates' future
earnings by $100,000.
Mark Leonard,
Project Syndicate: Last Man Standing. Much of modern geopolitics seems to be following the plot from Game of
Thrones, with many countries under so much political and economic stress that
their only hope is that their rivals collapse before they do. So their
governments cling to power while exploiting rivals’ internal weaknesses.
Russian President Vladimir Putin is the prime example. His recent campaigns in
Syria and Ukraine may look like the actions of a geopolitical buccaneer. But
the root of his adventurism is domestic weakness. Russia’s annexation of
Crimea, for example, was in large part an attempt to provide Putin’s regime
with renewed legitimacy following a winter of discontent, during which
demonstrators took to the streets to protest his return to the presidency.
Greg Ip WSJ: It’s
Not the Economy, Stupid. Social disarray
or cohesion are not always driven by economic ups and downs, as the 1960s
attest. Economics cannot really explain why rapid growth in living standards
coincided with so much political upheaval, just as it cannot explain why long
periods of stagnation, as Japan has endured since the 1990s, are met with
relative equanimity. Economics can’t explain why Britons may leave the European
Union when the preponderance of evidence is that membership has made them
richer. There is no way to predict the effect of so many different forces on
the political choices that voters make. And even if there were, you would
probably still not predict the rise of Mr. Trump, who got where he is by
breaking every rule of conventional political and economic wisdom. Ultimately,
the best explanation may be that he isn’t the product of larger economic
forces: he’s the product of Donald Trump.
Eileen Moery,
Robert J. Calin-Jageman, Social Psychological and Personality Science (2016):
Direct and Conceptual Replications of Eskine (2013). Organic Food Exposure Has
Little to No Effect on Moral Judgments and Prosocial Behavior. Is there a dark side to organic food? Eskine reported
that participants exposed to organic food became much more morally judgmental
and much less prosocial relative to participants exposed to neutral or comfort
foods. This research sparked tremendous media interest, but was based on one
experiment with a small sample size. We report three attempts to replicate
Eskine using samples conferring high power, preregistered analysis plans, and
original materials. Across two direct replications and an online conceptual
replication, we found that organic food exposure has little to no effect on
moral. Mere exposure to organic food is probably not sufficient to
substantially change moral behavior.
Barry Ritholtz,
The Bic Picture: 10 Cognitive Biases That Affect Your Everyday Decisions. Bandwagon effect, Availability Heuristic….
