This week from CEPR: February 04

Thursday, February 4, 2021

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


    • EMPLOYEES FACE LARGE LEVELS OF STRESS DURING COVID-19, WHICH IS UNEVENLY DISTRIBUTED AMONG THE WORKFORCE: Analysis from 5 European countries        

    ‘THE GREAT EMPLOYEE DIVIDE: Clustering employee 'well-being' challenge during Covid-19
    Jacques Bughin, Michele Cincera, Dorota Reykowska, Marcin Żyszkiewicz and Rafal Ohme
    Issue 66 Covid Economics  | 28 January 2021

    Workers have been facing large levels of stress during the Covid-19 pandemic beyond health issues, but that stress is not uniformly distributed among workers. There is much larger stress-related divide between employees than that induced by work location alone, with the divide being due to different perceptions of mix and level of worries.

    These are among the findings of a new CEPR Paper by Jacques Bughin, Michele Cincera, Dorota Reykowska, Marcin Żyszkiewicz and Rafal Ohme in Issue 66 of Covid Economics, which explores the relationship between Covid-19 and multiple forms of stress - health, economic, social, and psychological – faced by the workforce. The analysis covers 5 countries in continental Europe (Italy, Spain, France, Sweden, and Germany). Among the findings: 

    • Health risk (including about self and third parties like close family) is important but accounts for just above 40% of all risks expressed by the workers
    • Job and financial preservation risk is clearly important for a set of the working population and in all cases, is indeed a more important matter than for the non-working population, e.g. the retired, or the unemployed
    • 45% of the working population has a large breadth of worries, and is ‘fragile’ according to author’s terminology
    • 17% of the European population seems to have limited risk perception, except outside of work (and related to social violence)
    • This distribution of risk can be traced to a set of employees’ features, e.g. the segment that is more worried about job and finance has a higher portion of workers with lower education, less income generation, and are more in the midlife career
    • Those only worried about social violence, tend to be more of higher education
    • Those whose main worry is job preservation and finance stabilization are the least to trust the governmental actions so far in handling the Covid-19 crisis.

    • SELF-MADE WOMEN ARE ON THE RISE    

    HERSTORY: The rise of self-made women
    Arash Nekoei, Fabian Sinn       
    CEPR DP No. 15736  | January 2021

    Women’s under-representation at the top of the social hierarchy is not just one of the most enduring aspects of gender discrimination; it also influences subsequent generations’ ambition and self-esteem. New data documents the absence of a long-run trend in women’s share in recorded history, but provides new findings on the rise of a new type of woman – self-made women – as opposed to those women who dominated history for a long time whose power was based on family connections.

    A new CEPR paper by Arash Nekoei and Fabian Sinn documents the evolution of women's status across the globe and throughout recorded history. The authors construct a database of seven million notable individuals into a single database, the Human Biographical Record (HBR) to measure the share of women among each birth cohort’s most prominent individuals in recorded history and take a broader and comparative view of cross-section and time-series. Among the findings: 

    • The records show no long-run trend in women's share (among prominent individuals) in recorded history 
    • Historically, women's power has been a side-effect of nepotism: the more important family connections, the higher the women's share 
    • But self-made women began to rise among the writers in the 17th century before a broader take off started with the 1800 birth cohort: first among artists and scholars, followed by elected politicians, and finally appointed politicians
    • The first wave among writers emerged when informal humanist education and new public spheres shaped a supply of literary women, who met the demand of a new female reading public 
    • A strong writer wave predicts a stronger takeoff of self-made women in the 19th century. This effect has persisted and created cross-country divergence.

    Self-made women took off in separate waves, gaining momentum from 1800. What is remarkable about their rise is that it became a ubiquitous phenomenon in the 20th century, visible across countries, continents, and occupations. This unprecedented rise represents a relatively long-run trend. Its speed, given the initial low level, is far from satisfactory: at the current pace, using a linear extrapolation, we should expect to reach gender equality at the top by the year 3000. Whether the take-off documented here is a linear phenomenon remains unanswered, but what is clear is that self-made women are on the rise.


    • MONETARY POLICY DOES NOT REDUCE RACIAL INEQUALITY, IT MAY WELL EXACERBATE IT: Earnings and wealth differentials between black and white households  

    MONETARY POLICY AND RACIAL INEQUALITY
    Alina Bartscher, Moritz Kuhn, Moritz Schularick, Paul Wachtel
    CEPR DP No. 15734  | January 2021

    Policy shocks that change asset prices have differential effects on the wealth of black and white households. White households gain more because they have more financial wealth and hold portfolios that are more concentrated in interest-rate sensitive assets such as equities. At the same time, monetary policy shocks reduce the gap between black and white unemployment rates and bring larger earnings gains for black households. Bringing the two together, however, leads to one stark finding: the reduction in the earnings gap pales in comparison to the effects on the wealth gap.

    These are among the findings of a new CEPR Paper by Alina Bartscher, Moritz Kuhn, Moritz Schularick, Paul Wachtel, which examines the relationship between monetary policy and racial inequality by investigating the distributional effects of monetary policy in a unified framework, linking monetary policy shocks both to earnings and wealth differentials between black and white households. Among the findings: 

    • Although a more accommodative monetary policy increases employment of black households more than white households, the overall effects are small
    • At the same time, an accommodative monetary policy shock exacerbates the wealth difference between black and white households, because black households own less financial assets that appreciate in value
    • Over multi-year time horizons, the employment effects are substantially smaller than the countervailing portfolio effects. 

    The authors argue that there is little reason to think that accommodative monetary policy plays a significant role in reducing racial inequities in the way often discussed. On the contrary, it may well accentuate inequalities for extended periods.

    Figure 2: Change in wealth and wealth-to-income ratios relative to 1971

    Notes: The left panel shows the evolution of average black and average white wealth over time, normalized by subtracting 1971 averages for each group. The right panel shows the evolution of average black and average white wealth-to-income ratios over time, normalized by subtracting 1971 averages for each group. All data are in 2019 dollars.



    INDEPENDENCE WOULD COST SCOTLAND TWO TO THREE TIMES MORE THAN BREXIT

    Hanwei Huang, Thomas Sampson, Patrick Schneider           
    03 February 2021

    The Scottish National Party is calling for a second referendum on independence from the UK. Writing at Vox, Hanwei Huang, Thomas Sampson and Patrick Schneider examine the likely effect of changes in trade costs resulting from independence and Brexit on the Scottish economy, finding that independence would be two to three times more costly for Scotland than Brexit.

    In addition, the authors find that rejoining the European Union following independence would do little or nothing to mitigate these costs, reflecting the fact that Scotland’s trade with the rest of the UK is around four times greater than its trade with the EU. The combination of Brexit and independence is estimated to reduce Scotland’s income per capita by between 6.3% and 8.7%. 

     

    DOES REGULATION STIFLE TECHNOLOGICAL INNOVATIONS? Evidence from France

    Philippe Aghion, Antonin Bergeaud, John Van Reenen                
    01 February 2021

    Writing at Vox Philippe Aghion, Antonin Bergeaud and John Van Reenen introduce a new framework to quantify the magnitude of regulatory effects on innovation and the aggregate economy, using data from France.

    The results indicate that regulations hamper innovation, but the negative effects concern only incremental innovations and are absent for radical innovations. Overall, regulations are estimated to reduce aggregate innovations by 5%. 


    SCHOOL OPENINGS AFFECT LOCAL COVID-19 DIFFUSION UNLESS CLASS SIZES ARE SMALLER: Evidence from Sicily

    Michele Battisti, Andros Kourtellos, Giuseppe Maggio              
    02 February 2021

    School openings appear to increase the number of Covid-19 cases at a local level, although the effects are highly heterogeneous across school, population, and institutional characteristics. Interestingly, the effects disappear when class size is below average.

    These are the findings of a study by Michele Battisti, Andros Kourtellos and Giuseppe Maggio which investigates the role of schools in the diffusion of Covid-19 using a natural experiment in Sicily, where the reopening of some schools in autumn 2020 was delayed due to a national referendum and local elections. 


    AUTOMATION OF JOBS TO INCREASE POST-PANDEMIC, WITH MEDIUM TO LOW-INCOME WOMEN AT HIGH RISK: Evidence from the United States

    Alex Chernoff, Casey Warman             
    02 February 2021

    COVID-19 may accelerate the automation of jobs, as employers invest in technology to safeguard against pandemics. A study by Alex Chernoff and Casey Warman uses survey data from the United States to show that women with medium to low levels of wages and education are at the highest risk of COVID-induced automation.  


    POOLED PROCUREMENT OF DRUGS IN LOW- AND MIDDLE-INCOME COUNTRIES CAN LOWER PRICES AND IMPROVE ACCESS

    Pierre Dubois, Yassine Lefouili, Stephane Straub               
    30 January 2021

    Patients in the developing world often face prices for essential medicines far in excess of international reference levels, even if those drugs have lost patent protection.

    Writing at Vox, Pierre Dubois, Yassine Lefouili and Stephane Straub present evidence from seven low- and middle-income countries with diverse drug procurement systems to assess the effect of centralised procurement on drug prices.

    The results of the study highlight that centralised procurement of drugs by the public sector leads to lower prices, but that the induced price reduction is smaller when the supply side is more concentrated.


    AS COVID RAGES, BANKRUPTCY CASES FALL

    Simeon Djankov, Eva (Yiwen) Zhang           
    04 February 2021


     

    Bankruptcies have fallen sharply in OECD economies because of the array of COVID-related support available to businesses, as well as imposed moratoria on bankruptcy filings. Writing at Box, Simeon Djankov, Eva (Yiwen) Zhang argue that this situation won’t last, and that governments should start planning for a surge by the end of 2021 – ideally by reforming their bankruptcy laws, as the UK has done, and lessening the burden on courts.


    ACCESS TO VOCATIONAL EDUCATION OFFERS AN IMPORTANT PATHWAY INTO THE LABOUR MARKET AND BOOSTS LONG-TERM INCOME: Evidence from Finland

    Mikko Silliman, Hanna Virtanen             
    30 January 2021

    Vocational education could play an important role in providing young people the skills they need to succeed in the labour market after they graduate secondary education, finds new research from Finland.

    The study, by Mikko Silliman and Hanna Virtanen, uses admissions data from a vocational programme in Finland to show that applicants experience an average 6% increase in earnings in their mid-thirties if admitted to the vocational track. For students with a preference for the vocational track, failing to be admitted to the vocational track reduces employment in their mid-thirties by nearly 20%.

    These findings, coming from a period characterised by rapid technological change, provide new evidence that vocational education may offer an important pathway into the labour market, and provide valuable skills – particularly for those who are unlikely to graduate from higher education.


    CENTRAL BANK DIGITAL CURRENCIES RISK BECOMING A GIGANTIC FLOP

    Peter Bofinger, Thomas Haas               
    01 February 2021

    Central bank digital currencies are increasingly being discussed, mainly in relation to monetary policy and financial stability, but with less focus on their fundamentals. This column provides a comprehensive taxonomy for categorising central bank digital currency design options, and evaluates these options based on their allocative efficiency and attractiveness for users.

    The analysis shows that digital cash substitutes cannot be justified from either perspective. Instead, there is huge potential for central bank digital currencies in a retail payment system organised by the central bank, but without a new, independent payment object.


    HOW FINANCIAL MARKETS SHAPE SOCIAL VALUES AND POLITICAL VIEWS: Evidence from England

    Yotam Margalit, Moses Shayo               
    31 January 2021

    A study by Yotam Margalit and Moses Shayo uses a large field experiment to evaluate the effects of engagement in financial markets on participants' values and political preferences. Participants from a national sample in England were randomly assigned substantial sums they could invest in stocks or non-financial assets over a six-week period. Results show that:

    • Investment in stocks led to a more right-leaning outlook on society and economics, including issues like personal responsibility, merit, and the role of luck in economic success
    • It also increased support for market-friendly policies and less regulation. 

    By encouraging a pro-market social and political outlook, markets may engender a self-sustaining dynamic whereby their growing reach leads to wider support for their further expansion.


    WHAT WE CAN LEARN ABOUT ECONOMICS FROM PROFESSIONAL SPORT DURING COVID-19

    Carl Singleton, Alex Bryson, Peter Dolton, James Reade, Dominik Schreyer        
    31 January 2021

    Professional sport has experienced severe shocks from Covid-19, creating natural experiments. These have provided partial answers to a number of questions, including how airborne viruses may spread in crowds; how crowds respond to the risks and news of infection; how the absence of crowds may affect social pressure and decisions; and how quickly betting markets respond to new information. Writing at Vox, Peter Dolton and colleagues review the evidence and discuss how research in the economics of sport could continue to be most valuable to policymakers. 


    THE EFFECTS OF ‘GLOBAL SYSTEMICALLY IMPORTANT BANK’ DESIGNATION ON CORPORATE LENDING

    Hans Degryse, Mike Mariathasan, Thi Hien Tang            
    29 January 2021

    Frequent bailouts during the Global Crisis showed that governments cannot credibly commit not to support large financial institutions. This inability leads to moral hazard and motivated the Financial Stability Board’s framework for ‘global systemically important banks’.

    A study by Hans Degryse, Mike Mariathasan and Thi Hien Tang explores the net effects of this framework on the real economy, focusing on changes in corporate lending and the availability of credit as the basis to evaluate whether the framework is an effective way in which to reduce moral hazard and promote robust financial markets.


    NEW FINDINGS ON HOW REGULATORY SANDBOXES HELP FINTECHS RAISE FUNDING

    Giulio Cornelli, Sebastian Doerr, Leonardo Gambacorta, Ouarda Merrouche                  
    02 February 2021

    The rapid growth of innovative companies that use new technology has the potential to transform the financial sector fundamentally. A new study by Giulio Cornelli, Sebastian Doerr, Leonardo Gambacorta and Ouarda Merrouche shows that regulatory sandboxes – a prominent and widely adopted regulatory tool to spur innovation in the financial sector while staying alert to new risks – help these fintechs raise capital. They do so by reducing informational frictions and regulatory uncertainty.


    THE DEPOSITS CHANNEL OF MONETARY POLICY: A critical review

    Rafael Repullo                
    30 January 2021

    A novel channel through which monetary policy affects bank lending has recently been proposed, motivated by the empirical finding that increases in the monetary policy rate lead to reductions in bank deposits at bank branches located in counties with stronger competition between banks. Writing at Vox, Rafael Repullo questions the proposed theoretical underpinnings of this ‘deposits channel’ and offers an alternative model which is able to fully rationalise the empirical findings. 


    TRADE PROTECTION ALONG SUPPLY CHAINS: The negative effects of tariffs on downstream sectors

    Chad Bown, Paola Conconi, Aksel Erbahar, Lorenzo Trimarchi                 
    03 February 2021

    A study by Chad Bown, Paola Conconi and colleagues studies the effects of US antidumping duties applied against China – its most frequent target – over 1988-2016 on US firms in downstream sectors.

    It finds that tariffs have large negative effects on downstream industries, increasing production costs and decreasing employment, wages, sales, and investment.


    EXCHANGE RATES, INVOICING, AND PRICES: Lessons from the Swiss franc surge of 2015

    Raphael Auer, Ariel Burstein, Sarah Lein                  
    03 February 2021

    In 2015, the Swiss National Bank discontinued the minimum exchange rate of the Swiss franc relative to the euro, prompting a large and sudden appreciation of the franc. Writing at Vox, Raphael Auer, Ariel Burstein and Sarah Lein describe how the episode affected border prices, retail prices, and consumer expenditure. 
    It shows how cross-sectional variation in border price changes by currency of invoicing carried over to consumer prices and allocations. This episode can help inform estimates of the sensitivity of retail prices to border prices and the sensitivity of import expenditures to relative price movements. 



    CAPITALIST SYSTEMS AND INEQUALITY

    Dominic Rohner interviewed by Tim Phillips, 29 January 2021

    In classical capitalism, the rich earn their money from capital while the poor sell the value of their labour. In which countries is that still true, and how does it affect the gap between rich and poor? Branko Milanovic tells Tim Phillips about a new way in which we can think about inequality.



    WOULD THE UNITED STATES BENEFIT FROM A LOCKDOWN: A cost-benefit analysis

    Anna Scherbina interviewed by Tim Phillips, 01 February 2021

    Though COVID vaccines are finally available, the rate at which they are administered is slow, and in the meantime the pandemic continues to claim about as many lives every day as the 9/11 tragedy. Anna Scherbina (Brandeis University) talks to Tim Phillips about an estimate that with the promised rate of vaccinations, if no additional non-pharmaceutical interventions are implemented, 406 thousand additional lives will be lost and the future cost of the pandemic will reach $2.4 trillion, or 11% of GDP. Using a cost-benefit analysis, she finds that a lockdown would be indeed optimal and, depending on the assumptions, it should last between two and four weeks and will generate a net benefit of up to $1.2 trillion.

    You can find Anna's paper, Could the United States benefit from a lockdown? A cost-benefit analysis, in CEPR's Covid Economics Issue 65: 20 January 2021.