This week from CEPR: August 20
Thursday, August 20, 2020
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
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WOMEN FACE HIGHER UNEMPLOYMENT RATES AND WIDENING OF GENDER GAP DUE TO COVID-19
THIS TIME IT'S DIFFERENT: The Role of Women's Employment in a Pandemic Recession
Michèle Tertilt, Matthias Doepke, Titan Alon, Jane Olmstead-Rumsey
CEPR DP No. 15149 August 2020
Unlike in other recessions, employment losses have been larger for women than for men in the current recession caused by Covid-19. This is largely because their employment is concentrated in heavily affected sectors such as restaurants and hospitality, and due to increased childcare needs caused by school and daycare closures, preventing many women from working. The pandemic recession is likely to have sizeable repercussions for gender inequality, both positive and negative.
These are the main conclusions of a new study by Michèle Tertilt and colleagues, who examine the wider implications of the impact of a pandemic recession on working women. Among the findings:
- Women’s unemployment increased by 12.8 percentage points between February and April 2020, versus an increase of only 9.9 percentage points for men (US data). Similar patterns have been observed in other countries affected by the pandemic.
- The current recession has been greatest in high-contact service sectors such as restaurants, hospitality, and travel, which have been severely affected by social distancing. These are sectors where women represent a large share of the workforce, leading to high employment losses for this group during the crisis.
- Women have taken on a larger share of the extra childcare duties during the lockdown than men. As a result, more women than men have been unable to work either full time or at all during the crisis.
- Very few married workers are able to increase employment to make up for their spouse’s lost earnings. As a result of this loss of insurance, earnings losses are strongly translated to lower consumption demand, and marginal propensities to consume increase by a greater amount than in regular recessions.
- A pandemic recession has sizeable repercussions for gender inequality. In the short and medium term, a pandemic recession erodes women’s position in the labour market, first through direct employment losses, and later through the loss in labour market experience brought about by low employment during the recession. These forces lead to a widening of the gender wage gap during a pandemic recession and in its immediate aftermath.
- However, a pandemic recession can trigger changes that ultimately reduce gender inequality over the longer term. Specifically, the rise in work flexibility during a pandemic recession is likely to be persistent, and disproportionately benefits women who have major childcare responsibilities.
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THE GLOBAL MORTALITY CONSEQUENCES OF CLIMATE CHANGE: New evidence suggests greater long-term economic impact
VALUING THE GLOBAL MORTALITY CONSEQUENCES OF CLIMATE CHANGE ACCOUNTING FOR ADAPTATION COSTS AND BENEFITS
Tamma Carleton, Amir Jina, Michael Delgado, Michael Greenstone, Trevor Houser, Solomon M. Hsiang, Andrew Hultgren, Robert Kopp, Kelly McCusker, Ishan Nath, James Rising, Ashwin Rode, Hee Kwon (Samuel) Seo, Arvid Viaene, Jiacan Yuan, Alice Tianbo Zhang
CEPR DP No. 15139 | August 2020
Climate change will disproportionately affect mortality rates in poor countries and will likely become comparable globally to leading causes of death today. Advanced economies will likely face large adaption costs to deal with temperature rises, with the elderly most at risk. GDP losses from increased mortality and adaption costs could reach 3.2% of global GDP in 2100 under a high emissions scenario.
These are the main findings of a new CEPR study by Michael Greenstone and colleagues, which uses data for more than 24,000 regions to develop the first globally comprehensive and empirically grounded estimates of mortality risk due to future temperature increases caused by climate change. Among the findings:
- Extreme cold and hot temperatures increase mortality rates, especially for the elderly, that is flattened by both higher incomes and adaptation to local climate (e.g., robust heating systems in cold climates and cooling systems in hot climates).
- Under a high emissions scenario, it is estimated the mean increase in mortality risk is valued at roughly 3.2% of global GDP in 2100, with today's cold locations benefiting and damages being especially large in today's poor and/or hot locations.
- The release of an additional ton of CO2 today will cause damages of $36.6 under a high emissions scenario and $17.1 under a moderate scenario.
Globally, these empirically grounded estimates substantially exceed the previous literature's estimates that lacked similar empirical grounding, suggesting that revision of the estimated economic damage from climate change is warranted.
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HOW SLUMS SHAPE THE HEALTH AND ECONOMIC DYNAMICS OF PANDEMICS: Evidence from Brazil
SLUMS AND PANDEMICS
Luiz Brotherhood, Tiago Cavalcanti, Daniel Da Mata, Cezar Santos
CEPR DP No. 15131 | August 2020
Residents of overcrowded slums engaged in less social distancing after the outbreak of Covid-19, and slum dwellers account for a disproportionately high number of infections and deaths. Without slums, deaths fall overall but increase in non-slum neighbourhoods. Evidence from Brazil highlights the vulnerability of poorer individuals in developing countries during a pandemic.
Over one billion people in the world live in slums. These are usually crowded neighborhoods where social distancing is hard to be followed. Infectious diseases can thus spread rapidly in such areas. A new CEPR paper by Tiago Cavalcanti and colleagues studies the role of slums in shaping the economic and health dynamics of pandemics. Using data from Rio de Janeiro, Brazil, the analysis shows that:
- Residents of overcrowded slums engaged in less social distancing after the outbreak of Covid-19.
- Slum dwellers account for a disproportionately high number of infections and deaths.
- In a counterfactual scenario without slums, deaths fall overall but increase in non-slum neighbourhoods.
- Reallocating medical resources cuts deaths and raises output and the welfare of both groups;
- Mild lockdowns favour slum individuals by mitigating the demand for hospital beds whereas strict confinements mostly delay the evolution of the pandemic.
- Cash transfers benefit slum residents in detriment of others, highlighting important distributional effects.
LETTER TO G20, IMF, WORLD BANK, REGIONAL DEVELOPMENT BANKS AND NATIONAL GOVERNMENTSBan Ki-moon, Erik Berglöf, Gordon Brown, Helen Clark, Graça Machel, Mary Robinson |
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With over one billion children still out of school because of the lockdown, there is now a real and present danger that the public health crisis will create a COVID generation who lose out on schooling and whose opportunities are permanently damaged. Yet at the very time we need extra resources, education funding is under threat. This letter from over 275 world leaders calls on the G20, the IMF, the World Bank and regional development banks and all countries to recognise the scale of the crisis, and proposes three initiatives to get the most disadvantaged and vulnerable back into education and enable them to catch up.
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MASS GATHERINGS CONTRIBUTED TO EARLY COVID-19 MORTALITY: Evidence from US sportsAlexander Ahammer, Martin Halla, Mario Lackner |
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One additional mass gathering increased the cumulative number of Covid-19 deaths in affected US counties by 9%. The banning of mass gatherings, a comparably low-cost intervention, is a powerful policy tool in fighting the spread of infection. This is a main finding of a new study by economists at the Johannes Kepler University Linz, which estimates the impact of indoor mass gatherings on Covid-19 mortality in US counties, exploiting data from top-flight basketball and ice hockey games. |
CLIMATE CHANGE AFTER COVID-19: Harder to defeat politically, easier to tackle economicallyFranziska Funke, David Klenert |
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Covid-19 has shown what is possible once there is enough political will. In a post-pandemic world, will politicians still get away with decrying the demands of climate activists as unrealistic? Writing at Vox, Franziska Funke and David Klenert argue that the current pandemic is an exceptional opportunity to understand where the real challenges lie for progression on climate action – in garnering political will and public support. It provides key policy suggestions for the next wave of climate action. |
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SCHOOL ATTENDANCE DURING A PANDEMIC: Evidence from GreeceSofoklis Goulas, Rigissa Megalokonomou |
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During the 2009 swine flu pandemic, Greece eased its high school attendance policy despite few cases being reported among children of high school age. A new study by Sofoklis Goulas and Rigissa Megalokonomou examines the relationship between the relaxed attendance policy and absences, academic performance, and neighbourhood income. The results show that students of higher prior performance took more absences, while students of lower prior performance kept going to school. Prior performance is positively associated with neighbourhood income, suggesting that students in poorer neighbourhoods may be less likely to follow school distancing guidelines during a pandemic. The relaxed attendance policy is associated with decreased performance for students that take more absences. |
GLOBALISATION, URBANISATION, AND THE EFFECT OF LARGE CITIES ON PANDEMICSMasahisa Fujita, Nobuaki Hamaguchi |
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A new study by Masahisa Fujita and Nobuaki Hamaguchi finds that population concentration in large cities has provoked an even more intensive agglomeration of social and economic activities in high-interaction environments, driving urban development but also fostering conditions for the spread of Covid-19. Globalisation further promoted concentration, migration, and inequality, which might hamper the restructuring of the post-pandemic global economy if effective international coordination and a multi-core international regime that values diversity and competition in creative endeavours continue to be threatened. |
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FISCAL AUSTERITY AND THE RISE OF THE NAZIS: Lessons for policymakersGregori Galofré Vilà, Christopher Meissner, Martin McKee, David Stuckler |
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Many Western countries pursued deep austerity measures in response to debts from the financial crisis of 2007-2008, and may again do so in the wake of Covid-19 stimulus packages. A study by Gregori Vilà and colleagues reviews how in the early 1930s, austerity measures worsened social suffering and contributed to political unrest paving the way for the rise of the Nazi Party in Germany. The authors argue that the absence of a coherent response to social suffering from the Weimar government worsened the slump, contributing to the radicalisation and polarisation of the German electorate. |
UNIVERSAL TESTING IS AN OVERLOOKED COVID-19 POLICY RESPONSE: Analysis by IMF economistsReda Cherif, Fuad Hasanov |
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Writing at Vox, senior IMF economists argue that universal testing and isolation policy is the most viable way to vanquish the pandemic. Its implementation requires an epidemiological, rather than clinical, approach to testing, and requires the ramping up of testing kit production in order to achieve a scale and speed that the market alone would fail to provide. The estimated cost of universal testing is dwarfed by its return, mitigating the economic fallout of the pandemic. Lockdown measures, contact tracing, and widespread testing have dominated the policy responses of many countries to the Covid-19 crisis despite the benefits of universal testing. |
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MEASURING UNEMPLOYMENT AND LABOUR FORCE PARTICIPATION DURING THE COVID-19 PANDEMICHie Joo Ahn, James Hamilton |
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The Covid-19 crisis in the United States sent the unemployment rate soaring just as labour force participation crashed. A closer look at the data reveals several inconsistencies across labour force measures and the resulting unemployment estimates. This column highlights large discrepancies between the number of unemployment insurance claims and the count of unemployed in recent months, as well as in the number of people outside the labour force who wanted a job at the time. It argues that the actual unemployment rate was two percentage points higher prior to the pandemic than reported, and this gap has likely widened since the crisis. |
RESEARCH CLAIMS A LINK BETWEEN E-CIGARETTES AND RESPIRATORY DISEASE: Not so fastDon Kenkel, Alan Mathios, Hua Wang |
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Writing at Vox, economists from Cornell University argue that recent research appearing to demonstrate a link between e-cigarettes and respiratory disease does not tell the whole story. The authors find no evidence that current or former e-cigarette use is associated with respiratory disease among respondents who had never smoked combustible tobacco. Moreover, while dual users are more likely to develop respiratory disease than non-smokers, there do not appear to be significant differences between dual users and smokers. The study adopts a more flexible empirical specification that takes into account whether people are never smokers, former smokers or current smokers. |
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RACIAL DISPARITY IN COVID-19 DEATHS: Evidence from the United StatesJohn McLaren |
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A study by John McLaren identifies the socioeconomic factors that cause different racial groups to be differentially exposed to the virus in the United States. The results show that very strong racial disparities in Covid-19 mortality rates are seen for African-American and First Nations populations. Occupation, income, poverty rates, or access to healthcare insurance appears to matter little. Pre-Covid-19 use of public transport, however, may be a significant factor. |
SUPERSTAR FIRMS AND THE COMPARATIVE ADVANTAGE OF COUNTRIESCecile Gaubert, Oleg Itskhoki |
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Large firms, or ‘superstar firms’, are an important force in driving the comparative advantage of countries and its evolution over time. The granular structure of the world economy arguably offers incentives for governments to adopt trade and industrial policies targeted at individual firms. These are the main findings of a recent study by Cecile Gaubert and Oleg Itskhoki, which studies the role of such individual superstar firms and their specific know-how and managerial talent in determining a country’s comparative advantage. It finds that in France, sectors with more superstar firms export more compared to average sectors. The contribution of superstar firms to exports is particularly pronounced in the most export-intensive sectors. However, over the medium to long run, exports of such sectors tend to fall faster and reverse to the mean. |
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GLOBAL VALUE CHAIN TRANSFORMATION TO 2030: Overall direction and policy implicationsJames Zhan, Richard Bolwijn, Bruno Casella, Amelia U. Santos-Paulino |
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Based on UNCTAD’s World Investment Report 2020, a study by UNCTAD economists argues that the global trade and investment landscape will be reshaped by the restructuring of global chains, build-up of new regional chains, and distributed manufacturing. While these will present daunting challenges, they will also offer ample opportunities for firms and states alike and will lead to a GVC-development paradigm shift. Global value chains will undergo a drastic transformation in the decade ahead. The change will be driven by a push for greater supply chain resilience due to Covid-19, which adds to existing pressures from the technology revolution, growing economic nationalism, and the sustainability imperative. |
FIGHTING SUICIDE DURING COVID-19: Lessons from past pandemics and recessionsEudora Ribeiro |
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Fear and imposed isolation due to Covid-19 have raised alarms about the impact on mental health on a global scale. The severe anticipated global recession and substantial increases in unemployment and indebtedness are both risk factors for suicide. Writing at Vox, Eudora Ribeiro reviews past similar scenarios of pandemics and recessions and its links to suicide. The recipe for preventing suicide amidst the Covid-19 pandemic includes investment in mental healthcare, such as providing suicide prevention services, and active employment policies. |
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COVID-19 IS WIDENING INEQUALITY IN HIGHER EDUCATION: Evidence from the United StatesEsteban Aucejo, Jacob French, Paola Ugalde Araya, Basit Zafar |
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A new study by Arizona State University economists uses a survey of students at one of the largest public universities in the United States to show that while the Covid-19 pandemic has been broadly disruptive to students, this disruption has been much larger for lower-income students. This seems to be primarily driven by lower-income students being more likely to have been financially impacted by Covid-19 and more worried about the direct health risks from the virus. |
POVERTY, INEQUALITY, AND COVID-19 IN THE UNITED STATESCaitlin Brown, Martin Ravallion |
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Counties in the United States with higher overall income inequality tend to have higher infection rates. A higher population share of Black Americans and Hispanics is associated with higher infection rates. These effects do not fade over time from the first infection. Income is linked to Covid-19 risk factors: poorer people are less likely to be able to socially distance or telework. However, higher-income areas tend to have more in-person interactions. Writing at Vox, Caitlin Brown and Martin Ravallion disentangle the socioeconomic influences on Covid-19 behaviour and outcomes across the 3,000 counties of the United States. |
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ELECTRONICS LEAD CONCERNS OVER THE EU’S DECLINING SHARE IN GLOBAL MANUFACTURING VALUE CHAINSDavid Martínez Turégano, Robert Marschinski |
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The EU’s falling share in global manufacturing has fuelled concerns about an overall loss of competitiveness. Competitiveness concerns are most warranted for electronics, a key sector for productivity and innovation. The EU’s global share in electronics has fallen even more than in total manufacturing, without evidence that specialisation in other segments of this value chain could significantly mitigate the trend. These are the central findings of a new study by economists at the European Commission, which uses the World Input-Output Tables to decompose the value added for manufacturing value chains and study the drivers of EU’s relative decline. |
EURO AREA BANK BAILOUT POLICIES AFTER THE GLOBAL FINANCIAL CRISIS SOWED SEEDS OF THE NEXT CRISISViral Acharya, Lea Borchert, Maximilian Jager, Sascha Steffen |
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Writing at Vox, Viral Acharya and colleagues document how the design of the bailout policy for banks during the 2008/09 global financial crisis was determined by the fiscal capacity of the respective country. Fiscally weak countries recapitalised banks insufficiently, causing undercapitalised banks to shift their assets from loans to risky sovereign debt and engage in zombie lending, resulting in weaker overall credit supply, elevated risk in the banking sector, and, eventually, greater reliance on liquidity support from the ECB. Kicking the can down the road in 2008/09 thus sowed the seeds of the future banking crisis. These results have potential implications for the ongoing Covid-19 pandemic as, if the economic situation further deteriorates, banking sector stability is likely to be adversely affected. |
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THE VALUE OF LUCK IN THE LABOUR MARKET FOR CEOSMario Daniele Amore, Sebastian Schwenen |
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Do CEOs always earn their pay? A study by Mario Daniele Amore and Sebastian Schwenen finds that luck makes CEOs more likely to move to a new firm subject to low analyst coverage and in less competitive industries, where they receive a higher pay compared to industry peers. Hiring lucky CEOs harms firm performance due to a surge in operating costs and a poorer usage of corporate assets. |
BOARD DYNAMICS OVER THE STARTUP LIFE CYCLEMichael Ewens, Nadya Malenko |
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Corporate governance of privately held firms is becoming increasingly important given the rise in the number of private firms and recent governance scandals at such firms. A study by Michael Ewens and Nadya Malenko examines the structure of the board of directors at venture-capital-backed startups and documents new facts about private-firm board size, the allocation of control, and board-composition dynamics. The results show that within firms, board control shifts over time from venture capitalists to entrepreneurs. Independent directors play a previously under-explored ‘mediation’ role, mediating and resolving disputes between venture capitals and entrepreneurs. |
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EARLY NEGATIVE NEWS COVERAGE ON THE CORONAVIRUS CAUSED VOLATILITY IN FINANCIAL MARKETS: The absence of informationHarry Mamaysky |
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The Covid-19 crisis has been characterised by extremely volatile markets and extremely negative news coverage. Using all relevant Reuters news articles from January to June 2020, a study by Harry Mamaysky tracks the evolution of crisis news flow. In the early stages of the Covid-19 crisis, markets frequently reacted to uninformative news. This dynamic underwent a structural break in mid-March, likely due to Fed interventions, after which markets became more ‘normal’. Investors, lacking early hard evidence on the effects of the crisis, interpreted many news stories as being informative about future pandemic outcomes, even though they were not. |
THE HETEROGENEOUS TRANSMISSION OF ECB POLICIES: Lessons for a post-COVID EuropeGiancarlo Corsetti, Joao B. Duarte, Samuel Mann |
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| Writing at Vox, Giancarlo Corsetti and colleagues provide empirical and quantitative evidence suggesting that the transmission of the ECB’s monetary policy varies significantly across member states. For variables such as those related to housing and labour markets, the dispersion of responses to a monetary shock is twice as large as the average response. The results also suggest that the disruption to market integration brought about by the Covid-19 crisis may create further challenges to conducting monetary policy in the euro area. |  |
RESTRUCTURING OF DISTRESSED BANKS DURING A CRISIS HAS POSITIVE LONG-TERM EFFECTS ON PRODUCTIVITYReint Gropp, Steven Ongena, Jörg Rocholl, Vahid Saadi |
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Recessions are periods of low opportunity costs for time and resources, and hence can facilitate a productivity-enhancing reallocation of resources and improve productivity growth. However, recessions can also slow productivity growth by intensifying credit frictions, for instance, through the accumulation of legacy assets in the banking sector. A study by CEPR researchers Steven Ongena, Jörg Rocholl and colleagues investigates the interaction between these two channels in the recent banking crisis and shows that US regions with more restructuring of inefficient banks during the post-Global Crisis recession experienced higher productivity growth in the real sector in subsequent years. |
COVID-19 AND THE EU LABOUR MARKET: Corporate health mattersMarcin Wolski, Patricia Wruuck |
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The Covid-19 crisis has had a substantial impact on labour markets throughout Europe. Writing at Vox, European Investment Bank (EIB) economists use new data sources based on Google Trends reports in order to investigate the speed of transmission of the crisis into individuals’ concerns about becoming unemployed. The results indicate that this transmission is linked to corporate resilience. A stronger financial position of firms to withstand liquidity shortfalls may have helped to cushion the deterioration in job market sentiment during the outbreak of the pandemic, suggesting the importance of bolstering liquidity as a way of sheltering jobs. |
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THE COURT OF JUSTICE OF THE EUROPEAN UNION IN SCHREMS II: The impact of GDPR on data flows and national securityJoshua P. Meltzer |
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The Court of Justice of the European Union recently delivered its verdict in the Schrems II case, ruling that the EU-US Privacy Shield is invalid. A study by Josh Meltzer addresses the implications for adequacy and standard contractual clauses as well as the broader issue of how to balance national security and privacy goals. It concludes with observations about the potential impact of the decisions for the US and beyond and suggests some ways forward. |
NEW AND YOUNG FIRMS CONTRIBUTE DISPROPORTIONATELY TO GROWTH BUT ARE VULNERABLE DURING A PANDEMICPeter Klenow, Huiyu Li |
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The Covid-19 crisis may be particularly tough for relatively young firms to survive. Given that much innovation is attributed to young firms, this could then harm overall productivity. Protecting young firms is therefore essential to mitigating the productivity damage of Covid-19. Writing at Vox, Peter Klenow and Huiyu Li analyse firms’ market shares in order to infer their growth contributions. Compared to studies focusing on patents and R&D spending, the authors find a much bigger role for new and young firms in terms of accounting for productivity growth. |
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THE NEXT STEPS OF THE EUROPEAN PROJECTSebastian Blesse, Massimo Bordignon, Pierre C Boyer, Piergiorgio Carapella, Friedrich Heinemann, Eckhard Janeba, Anasuya Raj |
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The ongoing Covid-19 crisis has the potential to change the institutional design of the European Union (EU). A study by Pierre Boyer and colleagues analyses survey data asking parliamentarians from France, Italy, and Germany about their stances on a broad range of reform issues covering fiscal and monetary policies as well as EU governance mechanisms. The results show that in general, party membership is quantitatively more important than nationality in determining political stances. Further, while national parliaments still differ on many policies, a broader consensus emerges for reforms on EU institutions such as providing the EU parliament with the right of proposing new legislation. |
EUROPE'S ZOMBIE LENDING: A decade of stifled economic growth
Viral Acharya interviewed by Tim Phillips, 07 August 2020
Viral Acharya tell Tim Phillips that the action to save Europe's financial sector after 2008 has delayed reform in the banking sector - creating a decade of lending to zombie firms that has stifled economic growth.
DOES SOCIAL MEDIA MAKE US XENOPHOBIC? Evidence from Russia
Maria Petrova interviewed by Tim Phillips, 14 August 2020
Xenophobic attacks are on the rise around the world. Does social media help cause them? Maria Petrova tells tim Phillips about shocking new research from Russia.
BAILING OUT THE KIDS
Niels Johannesen interviewed by Tim Phillips, 18 August 2020
How much do we bail out our family in a crisis? By matching financial transactions and administrative data in Denmark, Niels Johannesen comes up with an answer for Tim Phillips.
COVID-19 IN EMERGING MARKETS: How are firms coping?
Thorsten Beck
Survey responses from early April across nearly 500 listed firms in ten emerging markets reveal that the vast majority of firms have been negatively affected by Covid-19 and reacted by reducing investment rather than payrolls. Thorsten Beck (Cass Business School) talks to Tim Phillips about “COVID-19 in emerging markets: firm-survey evidence”, from Covid Economics, Vetted and Real-Time Papers 38, July.