This week from CEPR: May 14
Thursday, May 14, 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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CONSUMPTION IN THE TIME OF COVID-19: Evidence from UK transaction data
CONSUMPTION IN THE TIME OF COVID-19: Evidence from UK transaction data
Sinem Hacioglu, Diego R Känzig, Paolo Surico
CEPR DP No. 14733 | May 2020
A new CEPR study by Sinem Hacioglu, Diego Känzig and Paolo Surico uses transaction data from a large fintech company to document a decline of 40-50% in the spending of British households during the Covid-19 crisis. Among the findings:
- The fall is concentrated in services such as retail, restaurants and transport.
- The initial rise in online shopping and groceries purchases has subsequently reverted. Income reductions have become far more frequent, with a median decline around 30%.
- The share of borrowers facing financing issues has increased significantly for both secured and unsecured lending.
- The share of users incurring bank charges, including those for overdrafts, has increased by 6% whereas the share of mortgagors with a decline in payments larger than 20% has more than doubled, from a value just above 4% in February to almost 10% in April.
- Consumption and income inequality have surged, with the most economically vulnerable groups experiencing the largest percentage decline.
- Mortgagors and higher earners in London record the most sizeable pound change.
- Greater London and the South East are the most affected regions whereas Wales and Northern Ireland are the least.
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LEADERS' SPEECH AND RISKY BEHAVIOUR DURING A PANDEMIC: Evidence from Brazil
LEADERS' SPEECH AND RISKY BEHAVIOUR DURING A PANDEMIC
Nicolas Ajzenman, Tiago Cavalcanti, Daniel Da Mata
CEPR DP No. 14707 | May 2020
How do political leaders’ words and actions affect people's behaviour? A new CEPR study by Nicolas Ajzenman, Tiago Cavalcanti and Daniel Da Mata addresses this question in the context of Brazil, where Bolsonaro has actively and publicly spread an anti-isolation message.
The study finds that that after the president publicly and emphatically dismissed the risks associated with the Covid-19 pandemic and advised against isolation, the social distancing measures taken by citizens in pro-government localities weakened compared with places where political support of the president is less strong. The results suggest a strong persuasion effect of Bolsonaro on the behaviour of his supporters. Specifically, a significant decrease in social distancing in pro-Bolsonaro municipalities following the most visible events of the president against self-isolation behaviour and policies.
The study combines electoral information and geo-localised mobile phone data for more than 60 million devices throughout the entire country. The results find that the impact is large. In addition, there is suggestive evidence that this impact is driven by localities with relatively higher levels of media penetration and is stronger in municipalities with a larger proportion of evangelical parishioners, a key group in terms of support for the president.
While citizens may neglect to follow best practices from a medical point of view, they are, more importantly, likely to be unaware of the global spread of the disease and ignore negative externalities. The study suggests that the role of leaders in this context is thus crucial to coordinating information, responding to expectations and establishing norms.
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DOES ECONOMICS MAKE YOU SEXIST? Evidence from Chile
DOES ECONOMICS MAKE YOU SEXIST?
Valentina A. Paredes, M. Daniele Paserman, Francisco J. Pino
CEPR DP No. 14723 | May 2020
Recent research has highlighted unequal treatment for women in academic economics along several different dimensions, including promotion, hiring, credit for co-authorship and standards for publication in professional journals. Can the source of these differences lie in biases against women that are pervasive in the discipline, even among students in the earliest stages of their training?
A new CEPR study by Valentina Paredes, Daniele Paserman and Francisco Pino explores this question and provides direct evidence on the importance of explicit and implicit biases against women among students in economics relative to other fields. Using survey data from undergraduate students in Chilean universities, both entering first-year students and students in years 2 and above, the authors find that on a variety of dimensions, Business and Economics students are substantially more gender-biased than students in other fields. Among the findings:
- Business and Economics are somewhat more biased already on entry, before exposure to any economics training.
- The gap becomes substantially more pronounced among final year students, in particular for male students.
- For a sample of students followed longitudinally, the bias increases over time.
- Differences in political ideology explain essentially all the gap at entry, but none of the increase in the gap with exposure.
- Exposure to women students and faculty attenuates some of the bias.
Teaching is maybe the area in which academic economists can have the largest policy impact, as they can shape the way of thinking of future leaders in the business and policy world. These results suggest that economics instructors should be particularly careful of hidden (and not so hidden) biases embedded in the material when teaching.
THE CASE FOR PERMANENT STIMULUSPaul Krugman |
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Policy-makers are frantically trying to come up with a response to the Covid-19 crisis. Writing at Vox, Nobel Laureate Paul Krugman argues that there is a very good case for putting a sustained, productive programme of stimulus in place as soon as possible, instead of scrambling to come up with short-term measures every time bad things happen. This column first appeared in the Vox eBook, Mitigating the COVID Economic Crisis: Act Fast and Do Whatever It Takes, available to download here. |
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THE IMPORTANCE OF IMMIGRANT KEY WORKERS IN EUROPE: The Covid-19 response that comes from abroadFrancesco Fasani |
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Migrant workers are playing a critical role in performing basic functions in EU societies hit by the Covid-19 epidemic. In addition, low-educated migrants, not just high-skilled ones, are employed in occupations that are key for their host societies, which suggests the need to reconsider, once the crisis has passed, a migration policy debate that is currently almost entirely focused on the importance of attracting high-skilled migrants. These are the central conclusions of a new study by Francesco Fasani, examining how ‘key workers’ are performing crucial tasks on the frontline of Europe's COVID-19 response. |
THREE SCENARIOS FOR THE IMPACT OF CORONAVIRUS ON THE UK ECONOMYJack Leslie, Richard Hughes, Charlie McCurdy, Cara Pacitti, James Smith, Daniel Tomlinson |
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Drawing on theory, experience from past viral outbreaks and real-time data, a new study by economists at the Resolution Foundation presents three scenarios for the UK economy over the next five years. Predictions show that economic outcomes could easily be worse than many current forecasts. Crucially, the duration and strictness of social distancing restrictions will define the total loss in output during the crisis and influence the likely pace of recovery post-crisis. |
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CULTURAL AND ECONOMIC DISCRIMINATION BY THE GREAT LEVELLER: The Covid-19 pandemic in the UKAnnie Tubadji, Don Webber, Frederic Boy |
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The Covid-19 pandemic has disproportionately affected the economically and socially vulnerable places across the UK along the lines of existing economic and cultural divides. These are the findings of a new study by Don Webber and colleagues, who argue that the pandemic is likely to exacerbate existing real and perceived deprivation on the brink of an expected economic shock at the end of the Brexit implementation period. If health deprivation is compounded by Brexit-related economic blows, greater protests are likely to be the result. |
COVID-19 WILL RAISE INEQUALITY: Evidence from past pandemicsDavide Furceri, Prakash Loungani, Jonathan D. Ostry, Pietro Pizzuto |
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Major epidemics in this century have raised income inequality and hurt the employment prospects of people with low educational attainment, while scarcely affecting those with advanced degrees. Writing at Vox, IMF economists argue that the Covid-19 pandemic could have similar distributional consequences, including depressing employment prospects for those most vulnerable such as low-skilled workers, in the absence of deliberate and strenuous government policies to protect the most vulnerable segments of society. |
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WORKING FROM HOME: Estimating the worldwide potentialJanine Berg, Florence Bonnet, Sergei Soares |
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A study by economists at the International Labour Organisation estimates the share of workers across the different regions of the world who could potentially perform their activities from home. The analysis shows that approximately one in six workers at the global level, and just over one in four in advanced countries, could potentially work from home. The potential for working from home varies across the world, as a result of differences in occupational structure, but also the infrastructure available to support working remotely. |
THE ECONOMIC IMPACT OF COVID-19 IN EUROPE AND THE US: Analysis from IMF economistsSophia Chen, Deniz Igan, Nicola Pierri, Andrea Presbitero |
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Avoiding or delaying non-pharmaceutical interventions may not fully shield an economy from the Covid-19 shock. Lifting mandatory lockdown measures – especially when the health crisis is not under control – may not have the expected effect on economic activity, as people would continue voluntarily to limit their mobility. Although Covid-19 is a truly global shock, regions and countries where the outbreak is more sizeable experience significantly more severe economic losses. These are the central findings of a new study by IMF economists, who use high-frequency indicators to underline the importance of preventions, early responses and other health measures to contain the outbreak at the local and national level. |
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POLITICAL BELIEFS AFFECT COMPLIANCE WITH COVID-19 SOCIAL DISTANCING ORDERSMarcus Painter, Tian Qiu |
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Social distancing is vital to mitigate the spread of the novel coronavirus. Leveraging smartphone geolocation data, Marcus Painter and Tian Qiu examine how political beliefs influence the effectiveness of state-level social distancing orders in the US. The findings suggest that Republicans and misaligned Democrats (who reside in Republican governed counties) are less likely to adhere to social distancing orders. These results suggest that bipartisan support is crucial in achieving full compliance with social distancing measures. |
GROWTH IN THE SHADOW OF COVID-19 DEBTJamus Lim |
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Large fiscal expenditures, as well as more loans to households and firms, will lead to sharp increases in public and private debt in the near future. The resulting debt burdens may affect both post-lockdown economic recovery and medium-run growth prospects. Writing at Vox, Jamus Lim presents evidence on the effects of the total debt burden on output dynamics. The results suggest increases in total debt to GDP have significant negative effects on growth. Helping economies recover from the dramatic Covid-19 shock will require tackling both public and private borrowing. |
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REAL-TIME CONSUMER SPENDING RESPONSES TO THE COVID-19 CRISIS AND GOVERNMENT LOCKDOWNDimitris K. Chronopoulos, Marcel Lukas, John O.S. Wilson |
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The Covid-19 virus and public health interventions instituted by the UK government caused consumer spending to decline as the government lockdown became imminent and has continued to decline since then. But these effects are not uniform: there are differences across gender, age and income level. These are the findings of a study by Dimitris Chronopoulos and colleagues, who analyse a large anonymised transaction-level dataset covering Great Britain to examine real-time consumer spending responses to the Covid-19 pandemic and related public policy measures. |
TESTING EFFICIENTLY: How to allocate Covid-19 tests across regionsChristelle Baunez, Mickael Degoulet, Stéphane Luchini, Patrick Pintus, Miriam Teschl |
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Covid-19 tests are a scarce resource in many countries. Writing at Vox, Christelle Baunez and colleagues propose a data-driven and operational criterion to allocate tests efficiently across regions, with a view to maximising the fraction of tested people who are positive. When applied to Italian regions, the criterion reveals that certain regions have received too many tests, compared with others who have received too little. It is hard to conclude that tests have been allocated where they are the most efficient and mostly needed. |
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HOW COVID-19 IS TRANSFORMING THE WORLD ECONOMYKemal Kilic, Dalia Marin |
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In the wake of the Global Crisis, uncertainty in the world economy led many firms to reassess their business models. Rather than relying on global supply chains, an increasing number of firms invested in robots, which prompted a renaissance of manufacturing in industrialised countries. Writing at Vox, Dalia Marin argues that changes in the world economy due to Covid-19 make a V-shaped recovery from the coming recession unlikely, despite what most international organisations such as the IMF and the OECD assume. Instead, Covid-19 will accelerate the process begun after the Global Crisis by encouraging firms to re-shore activity back to rich countries. |
UNINTENDED CONSEQUENCES OF BIRTH-RIGHT CITIZENSHIP FOR IMMIGRANT GIRLSGordon Dahl, Christina Felfe, Paul Frijters, Helmut Rainer |
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Granting birth-right citizenship to immigrant youth has the policy goal of increasing assimilation and welfare. But could it have unintended consequences if the parents value a more traditional outcome? A study by Helmut Rainer and colleagues uses a reform in Germany and survey data of school children to show that birth-right citizenship lowers life satisfaction and self-esteem for Muslim immigrant girls, but not boys. For these girls, it also results in family and career anxiety, reduced parental investments in schooling and language, less self-identification as German and more social isolation. |
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THE ASYMMETRIC IMPACT OF COVID-19 CONFINEMENT MEASURES ON EU LABOUR MARKETSSergio Torrejón Pérez, Marta Fana, Ignacio González-Vázquez, Enrique Fernández-Macías |
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A new study by European Commission economists makes an assessment of the labour market impact of the confinement measures put in place by EU governments. It finds that these restrictions are likely to have a very asymmetric effect across EU labour markets, with the most negative employment impact concentrating in the most vulnerable countries and categories of workers. |
THE VALUE OF SOCIAL DISTANCING IS NOT EQUALLY DISTRIBUTED: Developing countries at riskZachary Barnett-Howell, Ahmed Mushfiq Mobarak |
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Writing at Vox, economists from Yale University use the Imperial College London Covid-19 Response Team’s epidemiological model to estimate the benefit from a set of social distancing and suppression policies in different countries. The results indicate that a younger population, less susceptible to the disease and less willing to exchange economic wellbeing for risk reduction, means that lockdown measures are likely to be less valuable in poorer countries. The costs in poor countries also stand to be higher for households that rely on a daily wage to feed themselves and their families. Already we see emerging healthcare crises as routine medical care and vaccinations fall in countries across the world. |
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MAURITIUS: How a well-implemented and early ‘hard lockdown’ can be effective in managing the spread of COVID-19Ramanand Jeeneea, Kaviraj Sharma Sukon |
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The government of Mauritius responded early to the Covid-19 pandemic with stringent lockdown measures and the country then saw a drastic reduction in new cases. Writing at Vox, Ramanand Jeeneea and Kaviraj Sharma Sukon examine the Mauritian response and estimate that the measures led to an 80% reduction in the coronavirus transmission rate. A well-implemented and early ‘hard lockdown’ can be effective in managing the spread of COVID-19. |
COVID-19 LOCKDOWNS HAVE INCREASED SUPPORT FOR INCUMBENTS, TRUST IN GOVERNMENT AND SATISFACTION WITH DEMOCRACYAndré Blais, Damien Bol, Marco Giani, Peter John Loewen |
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Major crises can act as catalysts – either destabilising or strengthening the political regimes that oversee them, depending on how citizens view their government’s performance. A study by André Blais analyses a cross-country survey in Western Europe during March and April, a period that saw many of these governments enforce lockdowns in response to Covid-19. It finds a rally effect: individuals who took the survey immediately after lockdowns showed more support for incumbents and for democratic institutions than those who took it before. |
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CHINA, CLIMATE AND COVID-19: Managing subsidy spilloversBernard Hoekman, Douglas Nelson |
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Prior to the re-emergence of tariff nationalism as espoused by the Trump administration, subsidies were becoming a central source of trade tensions between major economies. The prospect of trade conflicts associated with the use of such instruments to combat climate change was increasing. Policy responses to the COVID-19 pandemic have led to a massive increase in subsidisation of firms in many countries. Writing at Vox, Bernard Hoekman and Douglas Nelson argue for a revisit of current approaches to addressing subsidy conflicts. The need for cooperation between the major economies to manage the international competitive spillovers of subsidies was evident pre-Covid-19. It has now become much more urgent. |
THE POTENTIAL IMPACT OF THE COVID-19 ON CHILD ABUSE AND NEGLECT: The role of childcare and unemploymentElisabetta De Cao, Malte Sandner |
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| Covid-19 is altering family dynamics in ways that threaten to put already vulnerable children at increased risk of abuse and neglect. Writing at Vox, Elisabetta De Cao and Malte Sandner demonstrate how a decline in childcare availability and employment can affect the treatment of children within families. Recommending that the immense costs of child maltreatment be considered in cost-benefit calculations of lockdown measures, the authors also urge governments to work with social care and healthcare providers to integrate children’s welfare in future risk reduction and preparedness. |  |
POLITICAL PARTICIPATION, POPULISM AND THE COVID-19 CRISISMassimo Morelli |
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Political participation is an important and often neglected channel through which economic insecurity, reductions in trust and changes in cultural attitudes all affect populism. Writing at Vox, Massimo Morelli argues that both the demand for and supply of populism depend on mobilisation, and that populism can be seen as a mobilisation campaign strategy. While this framework explains the recent surge of populism, it also provides reasons to believe that the populism wave could be temporary. The study also discusses possible consequences of the Covid-19 crisis for populists in and out of power. |
SELLER REPUTATION AND PRICE GOUGING: Evidence from the COVID-19 pandemicLuís Cabral, Lei Xu |
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As with other crises, the Covid-19 pandemic has seen sudden excess demand for certain goods and consequent price surges. Such price hikes often lead the public to call for laws protecting consumers from price gouging. A new study by Luís Cabral and Lei Xu provides evidence that larger and older sellers engage less in price gouging as they risk greater reputational loss from hiking prices in response to excess demand. Policy-makers might use seller reputation as a policy tool by barring new sellers from setting prices higher than incumbent sellers. |
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ECONOMIC POLICY RESPONSES TO A PANDEMIC: Developing the Covid-19 Economic Stimulus IndexCeyhun Elgin, Gokce Basbug, Abdullah Yalaman |
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Writing at Vox, Ceyhun Elgin and colleagues present a comprehensive review of the varying economic measures adopted by 166 countries. The findings show that the median age of the population, the number of hospital beds per capita, GDP per capita and the number of total cases are all significantly associated with the extent of the economic policy response. |
GENDER PAY TRANSPARENCY LAW REDUCES WAGE DISCRIMINATION WITHIN FIRMS: Evidence from DenmarkMorten Bennedsen, Elena Simintzi, Margarita Tsoutsoura, Daniel Wolfenzon |
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Wage transparency laws can reduce the gender pay gap by slowing wage growth for male employees and causing an increase in the hiring and promoting of women within firms. These are the central findings of a study by Elena Simintzi and colleagues, which analyses the wages of firms prior to and following the introduction of Denmark’s 2006 Act on Gender Specific Pay Statistics that required firms to provide gender disaggregated wage statistics. |
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STRATIFIED PERIODIC TESTING: A workable testing strategy for Covid-19Matthew Cleevely, Daniel Susskind, David Vines, Louis Vines, Samuel Wills |
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Relaxing the lockdowns imposed to control the Covid-19 pandemic requires a workable testing strategy for the population. Writing at Vox, David Vines and colleagues argue that ‘stratified periodic testing’ can help economies return to work while keeping Covid-19 cases falling. This strategy would involve testing individuals within specified at-risk groups for infection at regular intervals, upwards of once every five days. The study suggests this would be a better use of scarce testing resources than daily ‘universal random testing’ of the entire population – more than 21% of the population would need to be tested every day if the aim was to reduce the Covid-19 reproduction rate this way. |
REAL-TIME LABOUR MARKET ESTIMATES DURING THE 2020 CORONAVIRUS OUTBREAKAlexander Bick, Adam Blandin |
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Writing at Vox, Alexander Bick and Adam Blandin use a series of real-time labour market surveys of US households to document labour market outcomes more rapidly and more often than traditional government surveys. The estimates point to unprecedented devastation in the US labour market. New surveys will be run throughout the summer. |
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CLOUD COMPUTING AND FIRM GROWTHTimothy DeStefano, Richard Kneller, Jonathan Timmis |
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Writing at Vox, Timothy DeStefano and colleagues present evidence on the impact of cloud adoption by firms using firm level data from the UK. The results indicate that there are marked differences in the effects on young and incumbent firms, where cloud adoption largely affects the growth of young firms while it affects the geography of incumbent firms. Cloud services along with the fibre infrastructure enable young firms to scale up without increasing their geographic footprint while incumbents use the technology to reorganise, reduce their costs and increase their geographical dispersion. Moreover, these results show that cloud services enhance worker mobility resulting in the movement of workers across plants. The evidence suggests that cloud services are distinct from earlier IT technologies, which reinforced the scale advantages of incumbents. Cloud adoption is linked to a decline of firm investments in IT capital and software, indicating that cloud services allow firms to substitute away from owning IT equipment. |
THE TAKE OF INNOVATION ECONOMISTS ON THE COVID-19 CRISISGaétan de Rassenfosse, Dominique Foray, George Abi Younes, Charles Ayoubi, Omar Ballester, Gabriele Cristelli, Patrick Gaulé, Gabriele Pellegrino, Matthias van den Heuvel, Elizabeth Webster, Ling Zhou |
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SOUTHERN EUROPEAN AND EMERGING MARKET FIRMS ARE UNDER SEVERE DISTRESS: Estimates on firm survivalErica Bosio, Simeon Djankov |
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Writing at Vox, Simeon Djankov and Erica Bosio estimate the survival time of nearly 7,000 firms in a dozen Southern European and emerging market economies. Under the assumptions that firms have no incoming revenues, the results indicate that the median survival time across industries ranges from 8 to 19 weeks. Once collapsed export demand is taken into account, the median survival time falls to between 8 and 14 weeks. |
TOWARDS A EUROPEAN RECONSTRUCTION FUNDLuis Garicano |
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The idea that Europe’s response to the economic crisis should be based on the issuance of common perpetual bonds has been slowly gaining ground, but proposals that entail substantial increases to member states’ debt risk hampering growth for decades to come. Writing at Vox, Luis Garicano MEP, argues that the time has come for genuine European spending financed through European borrowing. He examines the legal and financial issues around the possible implementation of a proposal for the Commission to issue consolidated annuities (‘EU Consols’) to finance a €1 trillion economic reconstruction package. |
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EU TRADE POLICIES: Carrot-and-stick mechanisms in the pursuit of non-trade policy objectives?Ingo Borchert, Paola Conconi, Mattia Di Ubaldo, Cristina Herghelegiu |
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The EU often conditions preferential access to its market on the achievement of non-trade policy objectives such as sustainable development, human rights and good governance. Writing at Vox, Paola Conconi and colleagues study the evolution of such objectives in EU trade agreements and Generalised System of Preferences (GSP) schemes over time, and reveal the legal and economic limitations of imposing conditionalities in trade agreements compared with the GSP. The findings suggest that if the EU wishes to rely more on trade policy to promote such objectives, it should focus on GSP programmes. |
THE PANDEMIC ADDS MOMENTUM TO THE DEGLOBALISATION TRENDDouglas Irwin |
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The Covid-19 pandemic has led policy-makers and business leaders to question whether global supply chains have been stretched too far. Writing at Vox, Douglas Irwin argues that the pandemic simply adds further momentum to the ‘deglobalisation’ trend. The fourth era of globalisation appears to have peaked in 2008, and since then we have been in an era of ‘slowbalisation’. The risk of overreaction and a slide to protectionism is compounded by the failure of leadership in the US, leaving a vacuum in the world trading system. The absence of a coordinated and cooperative response could accelerate destructive ‘beggar-thy-neighbour’ policies not seen since the 1930s. |
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THE INVISIBLE BUSINESS RISK OF THE COVID-19 PANDEMICJordan Schoenfeld |
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Are pandemics systemically important to modern-day financial markets? Writing at Vox, Jordan Schoenfeld reveals that the Covid-19 pandemic triggered unprecedented changes in employment levels and the values of stocks, bonds, commodities and currencies. Corporate managers also systematically underestimated their business model’s exposure to pandemics in their annual report risk factors. |
THE FUTURE OF LIBERALISATION
Simon Evenett
How long will the current Covid-led liberalisation of trade regimes towards medical products last and are their ways of encouraging countries to maintain them? Simon Evenett (University of St. Gallen and CEPR) discusses. Taken from CEPR / LSE IGA / SPP webinar on: Covid-19: Keeping Trade Routes Open. 30 April 2020.
Covid-19: What Next For Globalisation
Steven Davis
Taken from a CEPR / LSE IGA / SPP webinar on: Covid-19: Keeping Trade Routes Open. 30 April 2020 Although there is likely to be some move towards protectionism and domestic policies in trade, some sectors, such as services and digital an data flows are still very much very much multi-national affairs.