This week from CEPR: January 07

Thursday, January 7, 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


    • WHEN THE GREAT EQUALIZER SHUTS DOWN: School closures have a large, unequal, and persistent effect on educational outcomes        

    WHEN THE GREAT EQUALIZER SHUTS DOWN: Schools, Peers, and Parents in Pandemic Times
    Francesco Agostinelli, Matthias Doepke, Giuseppe Sorrenti, Fabrizio Zilibotti  
    CEPR DP No. 15606  | December 2020

    WThe Covid-19 pandemic has brought about the largest disruption to children’s learning in many countries in generations. A new CEPR study by Francesco Agostinelli, Matthias Doepke, Giuseppe Sorrenti and Fabrizio Zilibotti examines the effects of school closures during the Covid-19 pandemic on children's education. Among the findings: 

    • Online education is an imperfect substitute for in-person learning, particularly for children from low-income families. 
    • Peer effects also change: schools allow children from different socio-economic backgrounds to mix together, and this effect is lost when schools are closed. 
    • Another factor is the response of parents, some of whom compensate for the changed environment through their own efforts, while others are unable to do so. 
    • School closures have a large and persistent effect on educational outcomes that is highly unequal. 
    • Students from poor neighbourhoods suffer a learning loss of 0.4 standard deviations, whereas children from rich neighbourhoods remain unscathed. 
    • The channels operating through schools, peers, and parents all contribute to growing educational inequality during the pandemic.
    • Learning losses, once accrued, are difficult to fully offset later on, suggesting that the current crisis will affect the economic opportunities of today’s children for decades to come.

    • IMMIGRANT WORKERS VULNERABLE TO EMPLOYMENT EFFECTS OF THE COVID-19 PANDEMIC: Evidence from Europe  

    Being on the Frontline? Immigrant Workers in Europe and the COVID-19 Pandemic
    Francesco Fasani, Jacopo Mazza       
    CEPR DP No. 15590  | December 2020

    A new CEPR study by Francesco Fasani and Jacopo Mazza provides the first assessment of the pandemic crisis impact on the labour market prospects of immigrant workers in Europe. Migrants' occupations are assessed by the level of contractual protection; the possibility of performing their job from home and the resilience of the industry in which they are employed. Among the findings: 

    • Migrants are generally more likely to have non-standard or informal contract, shorter job tenure and low-skilled occupations than comparable natives. 
    • Within industries and occupations, Extra-EU migrants and women are exposed to higher risk of unemployment than native men and that women are losing jobs at higher rates than equally exposed men. 
    • More than 9 million immigrants in the EU14+UK area are exposed to a high risk of becoming unemployed due to the pandemic crisis, 1.3 million of which are facing a very high risk.
    • Migrants' lower earnings suggest the need for policy action on income support schemes, which may take the form of widening migrants' access to existing welfare programs as well as of creating new schemes that specifically target foreign workers.

    • HOW FRIENDS SHAPE HEALTH BEHAVIOURS DURING THE COVID-19 PANDEMIC: Evidence from the United States   

    Social Distancing During a Pandemic - The Role of Friends
    Michael Bailey, Drew Johnston, Martin Koenen, Theresa Kuchler, Dominic Russel, Johannes Ströbel
    CEPR DP No. 15593  | December 2020

    Social networks shape and influence individuals' social distancing behaviour during the Covid-19 pandemic. An individual’s personal connections play an important role in shaping their health behaviours during a pandemic.

    These are among the findings of a new CEPR study by Theresa Kuchler, Johannes Ströbel and colleagues, which uses Facebook data to study the effects of network exposure to Covid-19 cases on health behaviour during the ongoing pandemic, focusing on the roles played by friends. Among the findings: 

    • People whose friends live in areas with worse coronavirus outbreaks reduce their mobility more than otherwise similar users whose friends live in areas with smaller outbreaks. 
    • The effects are quantitatively large: a one standard deviation increase in friend-exposure to Covid-19 cases early in the pandemic results in a 1.2 percentage point increase in the probability that an individual stays home on a given day. 
    • As the pandemic progresses, changes in friend-exposure drive changes in social distancing behaviour. Users with more friends in emerging hotspots in one month were more likely to reduce their mobility in the same month than others.
    • Personal connections shape distancing behaviour differentially across demographics; for example, the effect of having friends in areas with many Covid-19 cases on distancing behaviour is substantially larger for younger users and for users with college experience. 
    • Friend-exposure to Covid-19 raises awareness about the risks of the disease, thereby inducing individuals to participate in mitigating public health behaviour.
    • Users with higher friend-exposure to Covid-19 are more likely to post (on Facebook) about the coronavirus and are less likely to oppose distancing in these posts.
    • Friend-exposure to Covid-19 results in substantial decreases in visits to restaurants, bars, and places related to the arts, entertainment, and recreation.


    TWO PROPOSALS TO RESURRECT THE BANKING UNION: The Safe Portfolio Approach and SRB+

    Luis Garicano            
    17 December 2020

    Without completion of the Banking Union, Europe’s Economic and Monetary Union will continue to be fragile and exposed to a return of the doom loop. Writing at Vox Luis Garicano provides a politically and economically viable solution based on first, creating a model ‘Safe Portfolio’ and, through a reform of the regulatory treatment of sovereign exposures, incentivising banks to move towards it; and second, reforming the resolution framework to empower the Single Resolution Board while simultaneously setting up, within it, a European deposit insurance based on the emerging consensus around a ‘hybrid model’.

    Read "Two proposals to resurrect the Banking Union: The Safe Portfolio Approach and SRB+", CEPR Policy Insight No. 108, here

     

    WHY WAS THE COVID-19 APP INEFFECTIVE? Greater economic incentives and regulation needed 

    Nathan Sussman            
    18 December 2020

    The development of contact tracing apps was a promising response to the Covid-19 pandemic, but too few people appear to be using the apps to make them effective. Writing at Vox, Nathan Sussman offers three economic explanations for non-use: 

    1. the economic and social costs of quarantine
    2. underestimation of social externalities of app use
    3. procrastination

    The author calls for the immediate application of carrots in the form of financial incentives and sticks in the form of regulation to accompany holistic policies that cover education, public campaigns, trust building, accountability, and nudging.


    WOMEN WITH DEGREES IN ECONOMICS, BUSINESS, OR LAW EXPERIENCE A SIGNIFICANT ANNUAL WAGE-GROWTH PENALTY IF THEY HAVE CHILDREN 

    Rocío Sánchez-Mangas, Virginia Sánchez Marcos          
    20 December 2020

    A study by Rocío Sánchez-Mangas and Virginia Sánchez Marcos examines wages among European university graduates across fields of study and finds that women with degrees in economics, business, or law experienced a significant annual wage-growth penalty if they had children, whereas women with degrees in education, humanities and the arts, STEM, health or the social sciences paid no such penalty.


    POST-COVID-19 POTENTIAL OUTPUT IN THE EURO AREA: Potential growth rate in 2025 will be unaffected by Covid-19, though the level of GDP may be 2-5% lower 

    Ethan Ilzetzki         
    02 January 2021

    Global economic activity took a large hit during the Covid-19 pandemic, and the euro area was no exception. Writing at Vox, Ethan Ilzetzki reveals how the majority of the CfM-CEPR panel of macroeconomic experts on the European economy predict a 2-5% decline in the level of potential euro area GDP, but no impact on the potential long-run growth rate. 


    LOCAL INEQUALITIES EXACERBATED BY THE COVID-19 CRISIS: Evidence from Italy 

    Augusto Cerqua, Marco Letta            
    18 December 2020

    The impact of Covid-19 on employment and firms has been dramatically uneven across Italy and spatially uncorrelated with the epidemiological pattern of the first wave. This heterogeneity is associated with sectoral specialisation, exposure to social aggregation risks, and pre-existing labour market fragilities.

    Writing at Vox, Augusto Cerqua and Marco Letta present an impact evaluation of the local economic effects of the Covid-19 crisis in Italy. The findings suggest that the pandemic will deepen pre-existing local labour market vulnerabilities and further exacerbate territorial disparities. National top-down policies will be insufficient to lead the recovery, it is essential to adopt a place-based approach in the policy response to the crisis.


    EFFECTIVE PANDEMIC MANAGEMENT THAT MINIMISES ECONOMIC HARM

    Klaus Prettner, Simiao Chen, Michael Kuhn, David Bloom         
    04 January 2021


     

    Writing at Vox, Klaus Prettner, Simiao Chen, Michael Kuhn and David Bloom outline simple, effective, and low-cost policy measures designed to fight the spread of Covid-19. These measures, particularly when combined and enacted early, reduce infection rates substantially and have the potential to reduce the reproductive number of the virus below 1.0, which implies that the disease would peter out. Valuable time was lost at the beginning of the pandemic because the absence of evidence of an effect was mistaken for evidence of the absence of an effect.


    EIB INVESTMENT SURVEY SHEDS LIGHT ON THE CRISIS IMPACT ON THE EUROPEAN ECONOMY  

    Debora Revoltella, Pedro J. F. de Lima         
    21 December 2020

    A study by European Investment Bank economists Debora Revoltella and Pedro de Lima sheds light on Europe’s post-covid challenges  using data from the European Investment Bank Investment Survey.

    The results show that a sharp short-term shock will be followed by large structural changes to the global economy in the long term. Large sectors of Europe’s economy, particularly SMEs, need to innovate and adopt digital technologies to avoid falling behind. Policy support needs to evolve from liquidity provision to a more targeted push for structural transformation. 


    EPIDEMIOLOGICAL AND ECONOMIC CONSEQUENCES OF GOVERNMENT RESPONSES TO THE COVID-19 PANDEMIC

    Balázs Égert, Yvan Guillemette, Fabrice Murtin, David Turner            
    02 January 2021

    A wide-ranging package of public health policies – including comprehensive testing, tracing and isolation, mask-wearing, and policies directed at vulnerable people in care homes – are crucial to avoid full lockdowns while also containing the spread of the virus. Such policies may, however, need to be complemented by selective containment measures such as restricting large public events and international travel or localised lockdowns.

    These are among the findings of a study by OECD economists, which examines the crucial trade-off between curbing the spread of the Covid-19 pandemic and minimising further damage to economic activity. The research employs reduced form econometric estimates of the Covid-19 pandemic to quantify the impact of government interventions on disease progression and mobility. 


    A NEW DATABASE TO ASSESS FINANCIAL SECTOR POLICY RESPONSE TO COVID-19 AROUND THE WORLD

    Erik Feyen, Tatiana Alonso Gispert, Tatsiana Kliatskova, Davide S. Mare            
    17 December 2020

    Writing at Vox, World Bank economists introduce a new global database that tracks the wide array of support measures authorities have implemented to mitigate the impact of the Covid-19 crisis on the financial sector.

    The results show that banking sector measures constitute the majority of policies taken and that they aim to take advantage of the flexibility embedded in the international standards. However, emerging market and developing economies tend to rely more on prudential measures that go beyond this embedded flexibility compared to advanced economies which may reduce bank balance sheet transparency and increase risks to financial stability. Financial authorities in richer and more populous countries appear to have taken more actions and were more responsive.


    ANTITRUST ACTIONS: Views of leading economists on the cases against Facebook

    Romesh Vaitilingam       
    06 January 2021

    The US Federal Trade Commission and 46 states have brought antitrust cases against Facebook, which could potentially require the company to unwind its acquisitions of Instagram and WhatsApp. The IGM Forum at Chicago Booth invited its panels of leading US and European economists to express their views on whether requiring the company to make these divestments is likely to make society better off. As Romesh Vaitilingam reports, a considerably larger proportion of experts on the European panel agree or strongly agree with the statement than the US panel (78% compared with 59%); nearly a quarter of US experts are uncertain; and just over a sixth of US experts disagree.


    POLITICAL POLARISATION IMPEDES THE PUBLIC POLICY RESPONSE TO COVID-19: Evidence from mask usage in the United States 

    Maria Milosh, Marcus Painter, Konstantin Sonin, David Van Dijcke, Austin L. Wright          
    23 December 2020

    Mask usage, despite effectively diminishing the spread of Covid-19 without hampering economic activity, has been significantly impeded by political polarisation.

    A study by Konstantin Sonin and colleagues shows that mask usage is strongly associated with political partisanship in the United States. The findings show that localities which voted for Trump in 2016 are significantly less likely to wear masks, even if mask wearing is mandated. Leadership is shown to matter as well – tweets with positive sentiment towards masks surged after Trump wore a mask in public the first time. 


    INTEGRATION INTO GLOBAL VALUE CHAINS CAN REDUCE CHILD LABOUR

    Cristian Ugarte, Marcelo Olarreaga               
    24 December 2020

    A study by Cristian Ugarte and Marcelo Olarreaga analyses 26 developing countries from 2007–2015 and concludes that countries participating in global value chains experienced reductions in child labour except in cases when an increase in exports was accompanied by additional imported content from third countries.

    By 2025 the UN aims to have eliminated child labour, a practice that affects roughly 10% of the world’s children and severely impedes sustainable development. But reaching that target will require a clearer understanding of how global value chains interact with child labour. 


    POLARISED ELECTIONS RAISE ECONOMIC UNCERTAINTY

    Scott Baker, Aniket Baksy, Nicholas Bloom, Steven Davis, Jonathan Rodden            
    22 December 2020

    Elections can cause economic uncertainty, especially when elections take place in a politically polarised context. A study by Nicholas Bloom and colleagues examines how national election cycles in 23 countries influence economic policy uncertainty, as measured by the share of newspaper articles that discusses uncertainty and economic policy.

    The results show that economic policy uncertainty clearly rises in the months leading up to national elections. Average economic policy uncertainty values are 13% higher in the month before and the month of national elections than in other months during the same election cycle. In the US, economic policy uncertainty increases are especially pronounced around close and highly polarised presidential elections. 


    COVID-19 MAY FUNDAMENTALLY CHANGE CONSUMER PREFERENCES: EU countries must avoid zombification after Covid-19 

    Alexander Hodbod, Cars Hommes, Stefanie J. Huber, Isabelle Salle           
    21 December 2020

    A study by Alexander Hodbod and colleagues reveals how a representative consumer survey in five EU countries indicates that many consumers do not miss certain goods and services they have cut down on since the Covid-19 outbreak.

    The authors caution that fiscal policy must recognise that some firms will become obsolete in the altered post-Covid-19 environment. To achieve a swift recovery, these obsolete firms must be allowed to fail fast so that resources can be reallocated to more efficient uses. 
     


    THE VALUE OF PARENTAL INVOLVEMENT IN SCHOOLS: Evidence from Mexico

    Felipe Barrera-Osorio, Paul Gertler, Nozomi Nakajima, Harry Patrinos             
    18 December 2020

    A study by Felipe Barrera-Osorio and colleagues examines the effects of parental involvement programmes implemented at scale by the national government of Mexico. The results suggest that low-cost, group-based information interventions can increase parental engagement in schools, change parenting behaviour at home, and improve children’s behaviour in school. The impacts were particularly large for indigenous families, suggesting that parental involvement programmes can help improve school-family relationships for the most excluded populations.


    TRACKING GDP USING GOOGLE TRENDS AND MACHINE LEARNING: A new OECD model

    Nicolas Woloszko            
    19 December 2020

    Macroeconomic policymaking needs timely information on the current state of the economy, particularly when economic activity is changing rapidly. Given that GDP figures are usually only available on a quarterly basis, the Covid-19 crisis has prompted a search for alternative high frequency indicators of economic activity.

    Writing at Vox, Nicolas Woloszko presents evidence from a new tracker developed by OECD which uses Google Trends and machine learning to provide real-time estimates of GDP growth in countries all over the world.


    THE JOINT EFFECT OF PRIVATE AND PUBLIC ENVIRONMENTAL REGULATION ON EMISSIONS

    Mattia Di Ubaldo, Steven McGuire, Vikrant Shirodkar            
    03 January 2021

    The challenges of global warming and climate change require a coordinated effort by a variety of stakeholders, including businesses and governments. A study by Mattia Di Ubaldo, Steven McGuire and Vikrant Shirodkar assesses the effect of environmental protection provisions in EU free trade agreements, as well as that of private ISO-14001 environmental certifications on greenhouse and pollutant emissions.

    The results show that ISO-14001 certifications interact with an element of public environmental regulation, i.e. the environmental protection provisions in EU free trade agreements, in reducing emissions of carbon dioxide. While public and private regulation by themselves appear to affect different kinds of emissions, the complementarity emerging for carbon-dioxide emissions suggests a potential avenue for further coordinated efforts to reduce emissions. 


    CAUSES AND CONSEQUENCES OF THE US OPIOID CRISIS: A review of economic studies

    Catherine Maclean, Justine Mallatt, Christopher J. Ruhm, Kosali Simon          
    20 December 2020

    Opioid misuse in the US is estimated to cost over $500 billion annually, with fatalities from opioid overdoses exceeding the American death count from the Vietnam War. Writing at Vox, Catherine Maclean, Justine Mallatt, Christopher Ruhm and Kosali Simon examine the causes and consequences of the opioid crisis, based on a review of more than 100 economic studies.

    The findings show that policies such as prescription drug monitoring programmes, pill mill laws, prescribing limits, and doctor-shopping laws reduce opioid prescribing. However, their effects may be more limited in environments where many have already become addicted to opioids. 


    UNDERSTANDING THE PHILLIPS CURVE THROUGH THE LENS OF WORKERS’ BARGAINING POWER AND BUSINESS CYCLE FLUCTUATIONS

    Marco Lombardi, Marianna Riggi, Eliana Viviano        
    22 December 2020

    The Phillips curve – the relationship between economic activity and inflation – has become elusive since the 1980s in most advanced economies, including the euro area. Writing at Vox, Marco Lombardi, Marianna Riggi and Eliana Viviano argue that an important driver of this phenomenon is the erosion of workers’ bargaining power, which induced firms to react to business cycle fluctuations by adjusting the number of workers rather than hours worked per employee.



    HOW AUTHORITARIANS STAY IN POWER

    Konstantin Sonin interviewed by Tim Phillips, 18 December 2020

    Among other things, it has not been a great year for global democracy. So in the final VoxTalk of 2020, Konstantin Sonin tells Tim Phillips how authoritarian leaders grab and hold on to power. 



    THE YEAR OF COVID-19: Economics and CEPR in 2020

    Beatrice Weder di Mauro and Charles Wyplosz interviewed by Tim Phillips, 20 December 2020

    In Tim Phillip's last interview of 2020 for CEPR, he joins CEPR President Beatrice Weder di Mauro and Charles Wyplosz, editor of CEPR's influential Covid Economics Paper series, to look back at what has been an extraordinary year, both for CEPR and for the world in general.