AUGUST 25 2016

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.