This week from CEPR: 03 March

Thursday, March 3, 2022

Highlights from some of the latest research reports published in the Centre for Economic Policy Research (CEPR) network’s long-running series of discussion papers, as well as some other recent CEPR publications.

Also, links to some of the latest columns on Vox, the Centre’s policy portal, which provides ‘research-based policy analysis and commentary from leading economists’.

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    • New Discussion Papers


    • HOURS AND WAGES: Significant wage penalties exist for workers that deviate from 40 hour weeks 

    HOURS AND WAGES
    Alexander Bick, Adam Blandin, Richard Rogerson
    CEPR DP No. 17068 | February 2022

    A new CEPR study by Alexander Bick, Adam Blandin and Richard Rogerson examines the economic forces that shape the cross-sectional distribution of hours and wages and the implications of these forces for labour supply responses. Two empirical observations play a key role in this analysis. First, although the distribution of usual weekly hours features a large concentration of individuals who work around 40 hours, more than 20% of men work 50 or more hours. Second, the profile of mean wages versus usual hours is non-monotonic–increasing below 50 hours and decreasing above 50 hours.

    The authors argue that simple textbook models of labour supply cannot account for these facts jointly, and develop and estimate a model of labour supply to account for these features. The novel feature of the model is that earnings are non-linear in hours, with the extent of nonlinearity varying over the hours distribution. Their estimates imply significant wage penalties for individuals that deviate from 40 hours in either direction, leading to a large mass of individuals that work 40 hours and are not very responsive to shocks. This has important implications for the role of labour supply as a mechanism for self-insurance in a standard heterogeneous agent-incomplete markets model and for empirical strategies designed to estimate labour supply parameters.

    Figure: Cross-Sectional Relationship between Wages/Earnings and Hours

    Note: CPS ORG September 1995-August 2007.


    • HOW CAMPAIGN FINANCE RULES AFFECT CANDIDATE SELECTION AND ELECTORAL OUTCOMES IN FRANCE

    THE IMPACT OF CAMPAIGN FINANCE RULES ON CANDIDATE SELECTION AND ELECTORAL OUTCOMES: EVIDENCE FROM FRANCE
    Nikolaj Broberg, Vincent Pons, Clemence Tricaud

    CEPR DP No. 17045 | February 2022

    In French departmental and municipal elections, candidates competing in districts above 9,000 inhabitants face spending limits and are eligible for public reimbursement if they obtain more than 5% of the votes. Using an Regression Discontinuity Design (RDD) model to compare districts located just above the population discontinuity and just below, a new CEPR study by Nikolaj Broberg, Vincent Pons and Clemence Tricaud shows that:

    • These rules increase competitiveness and benefit the runner-up of the previous race as well as new candidates, in departmental elections, while leaving the polarisation and representativeness of the results unaffected. 
    • Incumbents are less likely to get re-elected because they are less likely to run and obtain a lower vote share, conditional on running. 
    • These results appear to be driven by the reimbursement of campaign expenditures, not spending limits. 
    • The study does not find such effects in municipal elections, which is attributed to the use of a proportional list system instead of plurality voting.


    INCREASE IN GLOBAL FINANCIAL RISK CAUSES LARGE AND PERSISTENT WIDENING OF SOVEREIGN SPREADS 

    Simon Gilchrist, Bin Wei, Vivian Yue, Egon Zakrajšek                
    26 February 2022

    Writing at Vox, Simon Gilchrist, Bin Wei, Vivian Yue and Egon Zakrajšek show how an increase in global financial risk causes a large and persistent widening of sovereign spreads, with the spillover effects especially pronounced for speculative-grade sovereign debt.

    Given the important role of global banks in today’s financial system, this theoretical framework also offers a useful perspective through which to view recent financial market disruptions.

     

    INFLATION, MARKET POWER, AND PRICE CONTROLS: Views of leading economists

    Romesh Vaitilingam                    
    25 February 2022

    Writing at Vox, Romesh Vaitilingam summarises the views of leading US economists on sharply rising US inflation, the potential role of powerful firms in driving up prices and whether antitrust interventions and/or price controls may be an effective policy response. Among the findings: 

    • Few think that dominant corporations in uncompetitive markets are a significant factor in rising prices. 
    • More than four in five experts disagree whether antitrust interventions could reduce inflation. 
    • A smaller majority disagrees with the proposition that 1970s-style price controls could reduce inflation, but even those who say that they might work don’t necessarily think that reintroducing them should actually happen.

    SHIFTING PROFITS TO TAX HAVENS IS WIDESPREAD - BUT WHERE DOES THE MONEY END UP? 

    Annette Alstadsæter, Julie Brun Bjørkheim, Ronald Davies, Johannes Scheuerer 
    01 March 2022

    Using matched employer-employee administrative data from Norway, a study by Annette Alstadsæter, Julie Brun Bjørkheim, Ronald Davies and Johannes Scheuerer shows that employer profit shifting contributes to income inequality and benefits high-skilled and high-paid employees most. High-skilled workers in service industries gain the most, with CEOs experiencing the highest wage increase.


    WOMEN’S LIBERATION, HOUSEHOLD REVOLUTION

    Moshe Hazan, David Weiss, Hosny Zoabi              
    24 February 2022

    In the late 19th century, US states began giving economic rights to married women. Before that, laws of ownership and control over property and income gave the husband virtually unlimited power within the household. 

    Writing at Vox, Moshe Hazan, David Weiss and Hosny Zoabi show how these changes in women’s economic power affected households and children. The findings suggest that expanding women’s rights increased their power at home, causing a ‘household revolution’ of decreased fertility and more education.


    GREATER FISCAL DECENTRALISATION BOOSTS PUBLIC PROVISION OF CHILDCARE AND WOMEN'S LABOUR FORCE PARTICIPATION: Evidence from Italy

    Nicola Bianchi, Michela Giorcelli, Enrica Maria Martino                   
    24 February 2022

    Research from Italy reveals greater fiscal decentralisation increases the public provision of child care and therefore female labour-force participation

    The study by Nicola Bianchi, Michela Giorcelli and Enrica Maria Martino shows that this effect is particularly strong among women under the age of 35, pointing to the importance of affordable childcare in shaping women’s labour market activity.


    WHY GLOBAL VALUE CHAIN PARTICIPATION DAMPENS EXPOSURE TO RISK

    Alessandro Borin, Michele Mancini, Daria Taglioni           
    01 March 2022


     

    Is too much interdependence through global value chains a problem? A new study by Alessandro Borin, Michele Mancini and Daria Taglioni compares the relative effects of a domestic demand shock to those of a global value chain-related shock to show that engagement in global value chains allows unexpected shocks to demand to be managed better than in a world of predominantly domestic production, traditional trade, or regional value chains. 

    Global value chain participation dampens exposure to risk, as idiosyncratic shocks are mitigated by a higher market differentiation.


    DEMAND–SUPPLY IMBALANCE DURING THE COVID-19 PANDEMIC: The role of fiscal policy

    Francois de Soyres, Ana Maria Santacreu, Henry Young        
    01 March 2022

    Writing at Vox, Francois de Soyres, Ana Maria Santacreu and Henry Young show that governments that provided generous fiscal support during the Covid pandemic increased the demand for consumption goods during the pandemic, but industrial production did not adjust quickly enough to meet the sharp increase in demand. This imbalance between supply and demand across countries led to high inflation. The findings suggest a sizable role for fiscal policy in affecting price stability, above and beyond what a monetary authority can do.


    SHARED RESPONSIBILITY CRITERION FOR ALLOCATING CARBON EMISSIONS ACROSS COUNTRIES

    Palizha Airebule, Haitao Cheng, Jota Ishikawa                   
    28 February 2022

    Carbon emissions are conventionally measured solely from the perspective of producers. Critics argue that this weakens the emission reduction targets set by participants of the United Nations Climate Change Conferences. 

    Analysing the emissions of the five largest polluters using a novel measure that accounts for both the consumer and producer perspective, a study by Palizha Airebule, Haitao Cheng and Jota Ishikawa shows that this increases measured emissions from the US and Japan and reduces those from China, India, and Russia due to international trade patterns. The findings raises important questions about how to appropriately allocate responsibility for reducing carbon emissions in the future.


    HISTORICAL GENDER DISCRIMINATION DOES NOT EXPLAIN COMPARATIVE WESTERN EUROPEAN DEVELOPMENT

    Nuno Palma, Jaime Reis, Lisbeth Rodrigues
    27 February 2022

    The comparatively slow economic growth of Southwestern Europe since the Middle Ages is often attributed to gender discrimination and the idea that women had more agency in England and the Low Countries, which kept fertility levels low and human-capital formation high. 

    A study by Nuno Palma, Jaime Reis and Lisbeth Rodrigues combines a dataset from six centuries of archival sources with a qualitative discussion of comparative social norms to show that women in Portugal were no more discriminated against than women in other parts of Western Europe, which suggests that other factors must be responsible for the divergence in incomes. 



    REVISITING THE EU FRAMEWORK: Economic necessities and legal options?

    Philippe Martin and Lucrezia Reichlin interviewed by Tim Phillips, 01 March 2022

    What are the economic imperatives and legal hurdles for reform? A new CEPR Policy Insight identifies the fault lines in the EU framework and suggests what can be done economically and legally to repair them.
    Read more about this research and download the Policy Insight: M. Maduro, P. Martin, JC Piris, J. Pisani-Ferry, L. Reichlin, A. Steinbach, B. Weder di Mauro, 'Revisiting the EU framework: Economic necessities and legal options', CEPR Policy Insight No 114.



    A POSITIVE INFLATION TARGET FOR THE EURO AREA

    Klaus Adam interviewed by Tim Phillips, 25 February 2022

    Inflation reduces economic welfare by distorting demand. But what is the inflation rate that minimises these distortions? Maybe it's a lot higher than our models assume, Klaus Adam tells Tim Phillips.

    Read more about this research and download the free DP: Adam, K, Gautier, E, Santoro, S and Weber, H. 2021. 'The Case for a Positive Euro Area Inflation Target: Evidence from France, Germany and Italy'. CEPR