This week from CEPR: September 16

Thursday, September 16, 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


    • THERE ARE LARGE DIFFERENCES IN PERCEPTIONS OF RACIAL GAPS, THEIR CAUSES, AND WAYS TO REDUCE THEM IN THE UNITED STATES: New evidence from a large-scale survey   

    PERCEPTIONS OF RACIAL GAPS, THEIR CAUSES, AND WAYS TO REDUCE THEM
    Matteo Ferroni, Stefanie Stantcheva
    CEPR Discussion Paper No. 16529 | September 2021 

    Using a large-scale survey in the United States, a new CEPR study by Matteo Ferroni and Stefanie Stantcheva documents large differences in how respondents perceive racial inequities between Black and white Americans, what they believe causes them, and what interventions, if any, they think should be implemented to reduce them. Among the findings: 

    • Although there are differences in how respondents perceive the magnitude of current racial gaps in economic conditions and opportunities, the biggest discrepancies are in how they explain them. 
    • There is a stark partisan gap among white respondents, particularly in the perceived causes of racial inequities and what should be done about them. 
    • White Democrats and Black respondents are much more likely to attribute racial inequities to adverse past and present circumstances and want to act on them with race-targeted and general redistribution policies. 
    • At the same time, white Republicans are more likely to attribute racial gaps to individual actions. 
    • These views are already deeply entrenched in teenagers based on their race and their parents' political affiliation. 
    • A policy decomposition shows that the perceived causes of racial inequities correlate most strongly with support for race-targeted or general redistribution policies.

    These results imply that voter attitudes on race may be quite different from those of the overall (voting and non-voting) population. For instance, younger and Black respondents are more supportive of race-targeted policies, yet less likely to vote, not the least because of costly and unjustified restrictions that act as substantial barriers to voting.


    • WOMEN’S EARNINGS LOSSES SIGNFICANTLY HIGHER THAN MEN’S AFTER JOB DISPLACEMENT: Evidence from Germany   

    THE GENDER GAP IN EARNINGS LOSSES AFTER JOB DISPLACEMENT
    Hannah Illing, Johannes Schmieder, Simon Trenkle
    CEPR Discussion Paper No. 16551 | September 2021

    Existing research has shown that job displacement leads to large and persistent earnings losses for men, but strikingly, evidence for women is scarce. Using new data from Germany, a CEPR study by Hannah Illing, Johannes Schmieder and Simon Trenkle compares men and women who are displaced from similar jobs and firms to show that: 

    • After a mass layoff, women's earnings losses are about 35% higher than men's, with the gap persisting five years after job displacement. 
    • This is partly explained by a higher propensity of women to take up part-time or marginal employment following job loss, but even full-time wage losses are almost 50% (or 5 percentage points) higher for women than for men. 
    • On the household level there is no evidence of an added worker effect, independent of the gender of the job loser. 
    • Parenthood magnifies the gender gap sharply: while fathers of young children have smaller earnings losses than men in general, mothers of young children have much larger earnings losses than other women.

    • IT INVESTMENT ACROSS CITIES HAS BEEN A KEY DRIVER OF JOB AND WAGE POLARISATION SINCE THE 1980S  

    IT AND URBAN POLARISATION
    Jan Eeckhout, Christoph Hedtrich, Roberto Pinheiro  
    CEPR Discussion Paper No. 16540 | September 2021

    A new CEPR study by Jan Eeckhout, Christoph Hedtrich and Roberto Pinheiro shows that differential IT (Information Technology) investment across cities has been a key driver of job and wage polarization since the 1980s. Using new data to trace out the effects of IT on the labour market between 1990 and 2015, the authors establish several key findings:  

    • IT investment is highest in firms in large and expensive cities.
    • The decline in routine cognitive occupations is most prevalent in large and expensive cities. 
    • The substitution of routine workers by IT leads to higher IT adoption in large cities due to a higher cost of living and higher wages. 
    • The fall in IT prices explains 50% of the rising wage gap between routine and non-routine cognitive jobs. 
    • The decline in IT prices also accounts for 28% of the shift in employment away from routine cognitive towards non-routine cognitive jobs. 
    • The impact of IT is uneven across space: expensive locations have seen a stronger displacement of routine cognitive jobs and a larger widening of the wage gap between routine and non-routine cognitive jobs.


    WHY HOUSE PRICES DIDN’T COLLAPSE IN THE PANDEMIC - and other lessons from the large body of research evidence on housing markets around the world

    John Duca, John Muellbauer, Anthony Murphy        
    13 September 2021

    Writing at Vox, John Duca, John Muellbauer and Anthony Murphy draw five lessons from the growing literature on house price cycles and their interactions with the economy:

    • Conventional theories of house price dynamics are misleading. 
    • Shifts in credit conditions, together with differences in housing supply response across cities, regions and countries, account for much of the heterogeneity of house price outcomes. 
    • Finally, increased demand for space and unprecedented policy interventions together explain the very different house price experience in the pandemic compared with the Global Financial Crisis.
     

    HIGHER CARBON TAX CAN LEAD TO HIGHER GLOBAL EMISSIONS AND DISCOURAGE INVESTMENT IN CLEAN TECHNOLOGY

    Haitao Cheng, Jota Ishikawa         
    16 September 2021

    A lack of cross-country coordination on carbon taxes and emissions trading policies can cause carbon leakage and increases in emissions. Analysing the effectiveness of carbon taxes and border tax adjustment policies in reducing emissions and shaping firms’ decisions on abatement investment and firm location, a study by Haitao Cheng and Jota Ishikawa shows that a higher carbon tax can sometimes lead to higher global emissions and discourage investment in clean technology. Likewise, border tax adjustments should be designed carefully to ensure lower emissions and compatibility with WTO rules.  


    SUCCESSFUL DEMOCRACIES BREED THEIR OWN SUPPORT  

    Daron Acemoğlu, Nicolas Ajzenman, Cevat Giray Aksoy, Martin Fiszbein, Carlos Molina                                 
    15 September 2021

    Democracies breed their own support – but only when they can successfully deliver on promises of economic growth, peace, political stability, and the provision of essential public goods. Daron Acemoğlu, Nicolas Ajzenman, Cevat Giray Aksoy, Martin Fiszbein and Carlos Molina use survey data covering over 110 countries to show that individuals with longer exposure to successful democracies tend to exhibit stronger support for democratic institutions. 


    THE EFFECTS OF THE BANK OF ENGLAND’S FUNDING FOR LENDING SCHEME 

    Matteo Benetton, Alessandro Gavazza, Paolo Surico                                 
    09 September 2021

    A study by Matteo Benetton, Alessandro Gavazza and Paolo Surico examines the effects of the Bank of England’s Funding for Lending Scheme, which offers cheap medium-term loans to UK lenders. Part of a wider push by central banks to stimulate the economy through policies aimed at revamping credit and housing markets in the aftermath of the 2007–09 financial crisis.

    The findings reveal how mortgage lenders actively price-discriminate across borrowers using two-part tariffs which split the origination fee from the interest rate. This increased after the introduction of the scheme, implying a stronger transmission of monetary policy to credit markets and the real economy.


    FINANCIAL INNOVATION TODAY AND TOMORROW

    Josh Lerner, Amit Seru                                  
    14 September 2021

    Financial innovation is intensely controversial, yet remarkably little is known about where or by whom these new products and services are developed. A new study by Josh Lerner and Amit Seru looks at over 24,000 financial US patents applied for between 2000 and 2018 to analyse the nature of financial patents. The research shows that: 

    • A surge in financial patenting was driven by IT firms and firms in industries outside of finance. 
    • Financial regulatory actions seem to have adversely affected innovation by financial firms, while regions with the highest technological opportunities attracted financial innovation by IT and non-financial firms.

    WAGE-SETTING AS MACROECONOMIC POLICY: More than just a lowflation and competitiveness cure

    Willi Koll, Andrew Watt                             
    03 September 2021


     

    Inflation in the euro area has been well below the ECB’s target since 2013. Writing at Vox, Willi Koll and Andrew Watt proposes institutionalising nominal wage setting within the economic governance of the euro area to bring inflation on target. Such a policy would also address the built-in tendency for divergences in internal demand dynamics and competitiveness within the euro area.  


    THE IMPACT OF COVID-19 ON GLOBAL PRODUCTION AND INTERNATIONAL TRADE: Using evidence from Japan

    Hongyong Zhang                          
    13 September 2021

    A study by Hongyong Zhang uses data on foreign affiliates of Japanese multinational corporations to show that multinational production and supply chains were negatively affected by the COVID-19 pandemic, especially in the 2nd quarter of 2020. 

    The sales of Japanese manufacturing affiliates almost recovered in the 4th quarter of 2020, indicating the resilience of global production and multinationals’ supply chains. But there are large variations in recovery across countries.


    INCREASED UNCERTAINTY CAN WORSEN UNEMPLOYMENT AS EMPLOYERS PREFER TO WAIT AND POSTPONE JOB CREATION

    Wouter den Haan, Lukas B. Freund, Pontus Rendahl                                    
    11 September 2021

    A new study by Wouter den Haan, Lukas B. Freund and Pontus Rendahl finds that elevated uncertainty, such as the induced spike in uncertainty due to Covid, robustly raises unemployment, because it incentivises potential employers to postpone job creation. 

    However, under the dominant theory of unemployment – the search-and-matching model – the value of waiting plays no role. Is it time to re-think the status quo? 



    PRICING CARBON RISK TO GET TO NET ZERO

    Patrick Bolton, 14 September 2021

    Do financial markets penalise firms that emit a lot of carbon, and is this an incentive for them to reduce emissions? Patrick Bolton of Columbia Business School has analysed the financial returns to estimate how carbon risk is priced.



    REMEMBERING PETER NEARY

    Abigail Adams-Prassl, Patrick Honohan, Beata Javorcik, Monika Mrázová, Richard Portes interviewed by Tim Phillips, 10 September 2021

    Earlier in 2021 Peter Neary passed away. This special episode pays tribute to his work and examines why Peter was held in such affection by his colleagues. With contributions from Patrick Honohan, Richard Portes, Monika Mrázová, Beata Javorcik, and Abi Adams-Prassl.