This week from CEPR: November 19

THE CHALLENGE OF GETTING PEOPLE TO TAKE THE COVID-19 VACCINE

Cevat Giray Aksoy, Barry Eichengreen, Orkun Saka        
16 November 2020

A survey of more than 10,000 Americans showed that only a slim majority of adult respondents would definitely or probably get a vaccine to prevent Covid-19, were it available today.

Last week brought welcome news about the apparent effectiveness of a potential Covid-19 vaccine. While the challenges of manufacturing and distributing the vaccine lie ahead, this column argues that the most difficult challenge may actually be getting people to take it. 

A 2018 study shows that vaccine scepticism is even greater in a number of other countries. Hope lies in the possibility of a more consistent and effective public policy response, in which governments’ non-pharmaceutical interventions produce positive results, in turn fostering confidence in the safety and efficacy of any vaccine they endorse and distribute.

COVID-19 SCHOOL CLOSURES HIT LOW-ACHIEVING STUDENTS PARTICULARLY HARD: The rise in educational inequality

Elisabeth Grewenig, Philipp Lergetporer, Katharina Werner, Ludger Woessmann, Larissa Zierow        
15 November 2020

A key feature of Covid-19 school closures is that there is no trained educator in the room to help. Writing at Vox, Elisabeth Grewenig and colleagues show that low-achieving students are particularly affected by the lack of teacher support. 

Based on a German time-use survey, it finds that students on average reduced daily learning time by about half during the school closures. This reduction was significantly larger for low-achieving students, who disproportionately replaced learning time with activities deemed detrimental to child development such as computer gaming rather than with more conducive activities such as reading.   

EARLY AND TIGHT LOCKDOWNS SAVE LIVES AND LIVELIHOODS

Francesca Caselli, Francesco Grigoli, Weicheng Lian, Damiano Sandri       
16 November 2020

During the first seven months of the pandemic, both lockdowns and voluntary social distancing helped contain the first wave of Covid-19. In particular, stringent and rapidly adopted lockdowns significantly slowed the spread of the virus. 

Before a vaccine becomes available, non-pharmaceutical interventions remain key to slow the spread of the Covid-19 pandemic. Despite their short-term economic costs, early and tight lockdowns pave the way to a faster recovery.

POLICIES THAT PROVIDE SUPPORT FOR MENTAL HEALTHCARE MAY HAVE LONG-TERM POSITIVE EFFECTS ON CRIME RATES: Evidence from the United States

Monica Deza, Catherine Maclean, Keisha Solomon      
14 November 2020

Individuals with poor mental health are more likely to be involved with crime, either as an offender or as a victim, compared to other individuals. Exploring this relationship, Monica Deza, Catherine Maclean and Keisha Solomon present evidence from the United States, arguing that policies that grant support to mental healthcare may have long-term positive effects on crime rates. Since crime is a complex outcome, a flexible and varied policy response is essential to tackling the issue.

SCHOOL HOLIDAYS ACCOUNTED FOR UP TO HALF OF THE INCREASE IN COVID-19 INFECTIONS IN GERMANY OVER THE SUMMER

Thomas Plümper, Eric Neumayer        
16 November 2020

What role did the summer holiday season play in increasing Covid-19 infections in Germany? A study by Thomas Plümper and Eric Neumayer finds that the estimated effect equates to 48.7% of the average growth rate across German districts during their respective final week of holidays. 

The findings also reveal how the effect differs across the 16 federal states and is conditioned by how rich a district is and by the share of foreigners amongst its resident population.

LOOKING UNDER THE HOOD OF THE LABOUR SHARE DECLINE: A tale of superstars, rising stars, and shooting stars

Matthias Kehrig, Nicolas Vincent        
14 November 2020

A decline in the labour share of income has been documented in many countries and industries. Using data from US manufacturing establishments Matthias Kehrig and Nicolas Vincent analyse the drivers of this phenomenon. 

The results show that the massive reallocation of economic activity was driven by establishments that lowered their labour share as they grew in size. Yet, these low labour shares are temporary, making establishments more akin to ‘shooting stars’ than ‘superstars’. Coupled with the fact that their status is associated with higher prices, the evidence points to a significant role for demand-side forces, such as product innovation or brand power. 

HOW TO PROTECT JOBS DURING COVID-19: Lessons from the Greek experience

Gordon Betcherman, Mauro Testaverde        
18 November 2020

Models for managing labour market shocks during and after the Covid-19 crisis will need to offer extended support where the shock persists or reoccurs. 

A study by Gordon Betcherman and Mauro Testaverde compares the Greek strategies to try to mitigate employment effects to the rest of Europe, and North America. Crucially, the study determines that successful policy approaches will need to be well suited for enabling job creation once conditions are in place for a restart.

HOW PEOPLE RESPOND TO RARE EVENTS: Findings from the Covid-19 Pandemic 

Martin Eichenbaum, Miguel Godinho de Matos, Francisco Lima, Sérgio Rebelo, Mathias Trabandt        
14 November 2020

How do people respond to risk? Using the Covid-19 pandemic as a natural experiment, Martin Eichenbaum and colleagues study the consumption behaviour of Portuguese public sector workers, whose income was likely unaffected by the crisis. They find that older workers reduced their consumption of high-contact goods by much more than younger workers. As the likelihood for dying from Covid-19 is increasing in age, these results suggest that workers’ responses are commensurate with the risk they face.

The fact that people behave, on average, rationally in the face of such events, does not imply that there is no role for government intervention during the current epidemic. In an epidemic, the competitive equilibrium is not socially optimal. The reason is that infected people don’t fully internalise the effect of their economic decisions on the spread of the virus. That externality implies that government policies like mandatory testing and quarantines can be welfare enhancing.

LOCALISING VALUE CHAINS AFTER COVID WOULD ADD TO THE ECONOMIC LOSSES AND MAKE DOMESTIC ECONOMIES MORE VULNERABLE

Christine Arriola, Przemyslaw Kowalski, Frank van Tongeren        
15 November 2020

The globalised nature of the 21st century global economy is a key component in terms of the dynamics, and effects, of the virus. Writing at Vox, Christine Arriola, Przemyslaw Kowalski and Frank van Tongeren present discuss the importance of global value chains, both during the pandemic and throughout the recovery process. The results of the study suggest that increased localisation could do more harm than good, and that the international network of interconnected supply chains remains key to producing essential goods and services.

THE WIRECARD SCANDAL: What needs to change

Jan Pieter Krahnen, Katja Langenbucher, Christian Leuz, Loriana Pelizzon     
12 November 2020

The Wirecard scandal has revealed major weaknesses in market and institutional oversight. Several mechanisms against corporate fraud and deception have failed in some respects. 

Writing at Vox, Jan Pieter Krahnen, Katja Langenbucher, Christian Leuz and Loriana Pelizzon discuss important implications of the scandal and make eight suggestions for the market and institutional oversight architecture in Germany and in Europe. 

PAUL MILGROM, PRICE DISCOVERER AND NOBEL LAUREATE

Joshua Gans         
15 November 2020

Paul Milgrom has been jointly awarded the 2020 Nobel Prize in Economic Sciences with Robert Wilson “for improvements to auction theory and invention of new auction formats”. Writing at Vox, Joshua Gans outlines his key contributions in this area, which explain why when the US government wanted to run the largest auction in history in the early 1990s, there was a ring on his doorbell – and why his doorbell rang again in October this year, this time by his fellow laureate.

CIVIL LIBERTIES DURING THE COVID-19 PANDEMIC  

Marcella Alsan, Luca Braghieri, Sarah Eichmeyer, Minjeong Joyce Kim, Stefanie Stantcheva, David Yang          
13 November 2020

Writing at Vox, Marcella Alsan and colleagues report on a large-scale representative survey administered to more than 400,000 people in 15 countries which shows that a large fraction of people around the world are willing to sacrifice their own rights and freedoms in order to improve public health conditions during the Covid-19 pandemic. 

Citizens’ support, however, is likely to differ, and depends on their own exposure to Covid-19 health risk, as well as on how much they fear the erosion of their civil liberties.

POLICYMAKERS PRIVATELY MOTIVATED INTERVENTIONS AFTER CRISES

Orkun Saka, Yuemei Ji, Paul De Grauwe        
13 November 2020

Financial crises lead governments to intervene, whether to ease the damage to middle-class voters, to respond to the anti-finance sentiment, or to introduce new policies favouring the financial industry. A study by Orkun Saka, Yuemei Ji and Paul De Grauwe traces policy interventions back to policymakers’ incentives. 

The results show that financial crises lead governments to re-regulate financial markets only in democratic settings. Politicians who are facing a term limit are substantially more likely to re-regulate financial markets after crises in ways compatible with their private incentives. These privately motivated interventions operate via controversial policy domains and favour incumbent banks in countries with more revolving doors between political and financial institutions.

PREPARING FOR A NEW ECONOMIC LANDSCAPE: How countries compare in their recovery capacity from Covid-19

Margareta Drzeniek, Sheana Tambourgi, Ilaria Marchese       
12 November 2020

The way countries are affected by the Covid-19 crisis and the pace of their subsequent recovery is unlikely to be symmetric and certainly not simultaneous. It is also increasingly clear that the post-pandemic economy will be different. Covid-19 is accelerating structural transformations, notably towards more digitalised and more automated economies.

To assess how countries compare in terms of their recovery capacity, economists at Horizon Group present a Covid-19 economic recovery index which considers the extent to which a country is exposed to major health effects from Covid-19, the degree to which a country’s economy will be affected by the crisis, and a country’s capacity to recover and rebuild to pre-Covid-19 levels. They subsequently present their findings. 

MONETARY POLICY EFFECTS IN TIMES OF NEGATIVE INTEREST RATES

Joost Bats, Massimo Giuliodori, Aerdt Houben         
17 November 2020

Interest rates have declined steadily over the last decades, recently turning negative in Europe and Japan. A study by Joost Bats, Massimo Giuliodori and Aerdt Houben finds that negative interest rates have important implications for bank stock prices. 

When market interest rates are negative, but deposit rates are stuck at zero, monetary policy instruments that target the longer end of the yield curve are less detrimental to bank performance compared with instruments that target the shorter end. Therefore, quantitative easing and yield curve control deserve special consideration when interest rates are negative and further monetary accommodation is required. 

COLLATERAL DAMAGE: Cross-border fallout from pandemic policy overdrive

Simon Evenett, Johannes Fritz      
17 November 2020

Writing at Vox, Simon Evenett and Johannes Fritz introduce the latest Global Trade Alert report, which documents the extensive cross-border spillovers created by government policy intervention during the first ten months of the year, much of it in response to the pandemic. The evidence challenges five common claims made by officials during crises and questions the current approach to crisis management found in WTO accords.