Covid and Economics

23 febbraio 2021

 Catarina Midões, Mateo Seré

 MILLIONS OF EUROPEANS WOULD FALL INTO VULNERABILITY IF IT WERE NOT FOR COVID-19 UNEMPLOYMENT BENEFITS

(synthesis; full article – VoxEu CEPR 06 February 2021 -: https://voxeu.org/article/millions-europeans-would-fall-vulnerability-without-covid-19-unemployment-benefits)

 Abstract: The COVID-19 outbreak has induced dramatic economic shocks in European countries. Using ECB survey data, this column examines households’ financial vulnerability to an income shock in seven European countries and assesses the degree of protection awarded to employees by COVID-19 employment protection schemes. It finds that 18.2 million individuals, or 7% of the population of the countries analysed, cannot cover one month of food and utilities by resorting to their deposits, pensions, and public transfers. Importantly, there is a significant drop in the number of vulnerable with COVID-19 unemployment benefits. Rent and mortgage suspensions are more effective in some countries than in others.

Keywords

Covid-19 pandemic, health crisis, economic shocks, households’ financial vulnerabilities, unemployment, mitigation policies.

The COVID-19 outbreak has brought, alongside a major health crisis, dramatic economic shocks to European countries. Governments around the continent are taking different measures to face the pandemic while preserving jobs and incomes (Baldwin and Weder di Mauro 2020). With economic activity far below pre-pandemic levels, many households are still witnessing substantial decreases in their earnings (Adams-Prassl et al, 2020).

In a recent paper (Midoes and Seré 2021), we analyse households’ financial vulnerabilities to an income shock and assesses the degree of protection awarded to employees, in different European countries, by COVID-19 employment protection schemes. The literature has measured financial vulnerability with different approaches, such as possession of financial assets, amounts in savings accounts and access to credit, or by directly asking individuals how confident they are that they could come up with a certain amount of money to face an unexpected need (Lusardi et al. 2011).

In our work, we instead define households as financially vulnerable or not by assessing whether they could cover their usual basic expenditures under a hypothetical shock. For that we analyse whether they could afford food and utilities, rent and mortgages if deprived of their privately earned income, resorting instead to a combination of savings and publicly provided income such as pensions, public transfers first, and also COVID-19 unemployment protection.

Our data come from Wave 3 of the ECB Household Finance and Consumption Survey (HFCS), conducted in 2017 where we consider seven countries (Austria, Belgium, Finland, France, Germany, Italy and Portugal). Given that the HFCS only covers gross income, we simulate net incomes obtained under the actual COVID-19 unemployment protection schemes enacted by each country through a microsimulation model, EUROMOD.

Vulnerability without unemployment protection schemes

For the seven countries of our sample, we estimate that 31.2 million individuals – or 12.8% of their combined population – are financially vulnerable when we consider food and utilities over a three-month horizon, meaning that they would not be able to afford those expenses for three months without privately earned income.

Both rent and mortgage expenses substantially increase the number of vulnerable individuals. Without privately earned income, 47.2 million, or 19.4% of the population analysed, cannot afford expenses once we add rents and mortgages to their basket. In relative terms, the impact of housing expenses is more severe in countries such as Germany and France – in the former, the percentage of vulnerable individuals jumps from 12.2% to 19.9%; in the latter it doubles from 9.2% to 18.4% – than in Portugal or Italy.

By restricting our sample to households where at least one individual has been in employment throughout the previous year, we consider whether households can afford expenses when they are deprived of their salary but are instead receiving COVID-19 unemployment benefits.

When we consider rent and mortgage as part of basic expenses, the percentage of vulnerable individuals increases to 10.5%. Nonetheless, COVID-19 employment protection benefits reduce the percentage of vulnerable individuals to 2.1%. …The benefits are again quite effective at reducing vulnerabilities across all countries. In Italy, Portugal and Belgium, where vulnerability is highest at baseline, we estimate only 5.0%, 4.2% and 3.7%, respectively, of those affected are vulnerable at the three-month mark. Despite the effectiveness of the scheme, Italy is the country with the highest absolute number of vulnerable individuals, at 969,000. France, where only 0.85% of those affected are vulnerable, nonetheless follows with 360,000.

Effects of a more generous COVID-19 unemployment benefit

With the exception of Finland – where the unemployment benefit is a daily fixed amount – the unemployment scheme covers a percentage of salaries, varying from 60% (in Portugal) to 90% (in Austria). By raising the replacement rate to 90%, we observe a reduction of individuals’ vulnerability in all countries. A more noticeable effect is observed in Italy and Portugal, but there are also meaningful reductions in countries with an already extremely low percentage of vulnerable individuals (i.e. in France, Finland and Belgium).

This highlights the fact that the vulnerable individuals identified in our simulations do not come from gaps in coverage generated by our procedure, but from the coverage itself not being sufficient for expenses. The results we now find, where there is an important reduction of vulnerability under a more generous layoff scheme, are a reflection of this. It should be noted that while the performance of Belgium was among the best before considering COVID-19 unemployment benefits, after its consideration, the country only performs better than Italy and Portugal. This is because the Belgian COVID-19 income support is amongst the least generous.

Effect of a suspension of rent and mortgages on the main household

We can see the percentage of vulnerable individuals when we consider expenses on food and utilities, rent and mortgage, at the three-month mark, detailing how much each expense contributes to overall vulnerability. In Germany and Italy, expenses with rent explain a larger part of vulnerability than mortgages. For example, in Italy, the percentage of individuals who would not be able to cover expenses considering food and utilities, rent, and mortgages is 22.3%. This percentage would be reduced by 3.4 percentage points if a rent suspension were enacted. By contrast, it would only be reduced by 1.5 percentage points if instead mortgages were suspended. We observe the opposite in countries such as Belgium and Portugal. In these countries, while rent suspension would only reduce the percentage of vulnerable individuals by 1.6 percentage points and 3.1 percentage points, respectively, mortgages suspension would reduce it by 6 percentage points and 6.4 percentage points, respectively.

When we analyse these policies under a scenario where individuals are receiving the COVID-19 layoff, in Portugal, rent and mortgage expenditures play a similar role, in Italy rent remains more relevant, and in Belgium mortgages remain more relevant. Rent and mortgage suspensions thus can be an effective support for vulnerable households. In most countries, both under a non-salary scenario and under COVID-19 benefits, mortgages play a more relevant role. Yet, in Italy, rent is more relevant, while in France, they are equally important. This highlights the need to develop country-specific policies for alleviating vulnerability.

Concluding remarks

While we still do not know how long the economic recession induced by the COVID-19 pandemic will last, in this column we attempt to provide evidence on how sensitive individuals are to this type of shock and on the effectiveness of the enacted mitigation policies.

Even with pensions and public transfers, a large number of individuals depend on household privately earned income to cover for their most basic expenses in the very short term – 18.2 million individuals, or 7% of the population of the seven European countries analysed, cannot cover one month of food and utilities by resorting to their deposits, pensions and public transfers. At the three-month horizon, this number increases to 31.2 million, or 13% of the population analysed. We observe a significant drop in the number of vulnerable people when we award them COVID-19 unemployment benefits. By considering net incomes on households of employees, we find significant differences across countries. Employees in Austria, Finland, Belgium and Germany are less vulnerable to a labour income shock than those in Italy and Portugal. The employment protection schemes awarded are extremely effective in decreasing these numbers, particularly in Italy. Rent and mortgage suspensions are more effective in some countries than in others. Countries like Portugal, Belgium and France can achieve an important reduction in their vulnerability through these measures, while in Italy they should be coupled with COVID-19 unemployment benefits to bring about a meaningful reduction.

Two reasons explain why countries like Austria and France perform better than, for example, Portugal. The first is that, in the former two countries, only 2.1% and 2.5%, respectively, receive an income below basic expenses under the scheme, while in Portugal that figure is 12.7%. The difference in the generosity of the support results in a more effective public transfer in the former two countries, just as with non-COVID-19 public transfers. The second reason is the pre-existing differential in savings – French and particularly Austrian households can cover their expenses from deposits alone for a longer period of time.

Countries with wider fiscal space can enact more generous policies. The layoff schemes in Austria and Finland are more generous than the Portuguese. Households in these countries, according to our results, are the most robust to overall income shocks, being able to sustain expenses from deposits alone for longest. These differentials in suffered impact, household finances, and public finances underlie the different perceptions of urgency about the crisis and different eagerness for concerted EU financing of support policies.

15 febbraio 2021

 SIMEON DJANKOV, EVA (YIWEN) ZHANG

 As COVID rages, bankruptcy cases fall

(synthesis; full article – VoxEu CEPR 04 February 2021 -: https://voxeu.org/article/covid-rages-bankruptcy-cases-fall)

 Abstract: 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. This column 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.

Keywords

Covid-19 pandemic, bankruptcy, advanced economies, job support programmes, insolvency laws.

Economic crises bring an upturn in bankruptcies. Companies suffering losses struggle to survive, and many fail. A wave of bankruptcy filings was expected in the wake of COVID-19 too (Bailey et al. 2021). Yet during 2020, the number of corporate bankruptcy filings in most advanced economies – members of the OECD – fell by 17% relative to 2019, and by even more relative to previous years (Figure 1). This decline in bankruptcy cases demonstrates the success of the initial COVID-19 response measures. On second glance, however, it brings worries too (Blanchard et al. 2020).

Figure 1 Average 2020 bankruptcy filings are 17% lower than in 2019

Note: The index is based on total number of bankruptcies in 25 advanced economies (Australia, Austria, Belgium, Canada, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Iceland, Japan, Luxembourg, the Netherlands, New Zealand, Norway, Poland, Portugal, South Korea, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States. For 12 economies (Australia, Belgium, Canada, Estonia, Finland, Germany, Iceland, Norway, Spain, Sweden, Turkey and the United Kingdom), the latest available data (most often to November 2020) are annualized to 2020 annual aggregates.
Source: Authors’ calculation using national data (accessed through Macrobond on 26 January 2021).

Bankruptcy filings have declined in 24 of 25 advanced economies

Data for 2020 are available on bankruptcy filings in 25 OECD economies. In the US, these fell by 16% relative to last year. The other major economies show the same pattern of decline. In Japan and Germany the falls are 7% and 13%, respectively; in Canada and the UK, bankruptcies fell by around a quarter (Figure 2). The largest decline is in Australia and France (40%), while Poland is the only country that shows no change relative to 2019.

Figure 2 Bankruptcy cases decline across advanced economies

Note: The index is based on total number of bankruptcies in 25 advanced economies (Australia, Austria, Belgium, Canada, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Iceland, Japan, Luxembourg, the Netherlands, New Zealand, Norway, Poland, Portugal, South Korea, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States. For 12 economies (Australia, Belgium, Canada, Estonia, Finland, Germany, Iceland, Norway, Spain, Sweden, Turkey and the United Kingdom), the latest available data (most often to November 2020) are annualized to 2020 annual aggregates.
Source: Authors’ calculation using national data (accessed through Macrobond on 26 January 2021).

The reasons for this decline are twofold. The COVID-19 pandemic has induced governments in many advanced economies to finance job support programmes to assist workers and to temporarily halt bankruptcy procedures – providing lifelines to keep firms alive through the crisis, at a time when premature bankruptcy can worsen the recession. The job support programmes have been updated and expanded in most OECD countries, while the bankruptcy moratoriums are expiring soon in many countries. Australia, for example, returned to normal bankruptcy procedures on 1 January 2021 (Australian Financial Security Authority 2021).

For many employers and businesses, the government programmes have worked. Businesses have reacted by keeping employees on board or hiring new ones when restrictions on business operations became less onerous. In turn, the support keeps businesses open, in the hope that the economy turns around.

This availability of plentiful financial support to businesses cannot continue for long. A large number of firms will need debt restructuring once government support programmes run out and the courts open up. Extensive reorganisation or liquidation procedures, which may work in normal times, will prove insufficient to service a large wave of insolvencies. Changes to existing regimes should be done now, before the wave on bankruptcies comes. In March 2019 – a year before COVID started closing down businesses – the European Parliament adopted a new directive on preventive restructuring, aiming to increase the efficiency of insolvency proceedings (Becker 2019). The Reform Directive specifies that a new procedure must be in place in all EU member countries by 2022. The UK has done just that and thus provides an example for other governments to follow.

The UK has added three features to its bankruptcy law

The amendments to the UK insolvency law, adopted in June 2020, add three features (Balloch et al. 2020). First, these amendments introduce a two-month moratorium, during which the company benefits from a payment holiday from the majority of its debts. Second, the amendments allow the debtor to propose a rescue plan that can be forced onto every creditor if the majority of creditors agree. Third, suppliers are prevented from stopping deliveries once they find out that the debtor has trouble paying creditors, as long as the firm pays for its supplies on time – even ahead of bank creditors. Research on bankruptcy procedures around the world (Djankov et al. 2008) shows that the type of changes the UK has enacted increase the likelihood firms will survive, as they continue operating during their restructuring.

Some economists are concerned that keeping insolvent firms alive will drain resources from the healthy parts of the economy (Acharya 2020). These fears are fundamentally misguided. Policies to force businesses to shut down permanently risk slowing down the COVID recovery (Laeven et al 2020). As businesses shut down, they break a supply chain that affects other businesses, including in healthier sectors. Such breakage should be avoided as much as possible.

08 Febbraio 2021

Natalia Martín Fuentes, Isabella Moder

 THE SCARRING EFFECTS OF COVID-19 ON THE GLOBAL ECONOMY

(synthesis; full article -05 February 2021 – : https://voxeu.org/article/scarring-effects-covid-19-global-economy)

Abstract: The COVID-19 pandemic is an unprecedented shock to the global economy and its potential scarring effects are thus difficult to predict. This column presents estimates of the long-term impact of past crises, suggesting that past epidemics and other exogenous shocks did not cause scarring effects, while the negative impact of financial crises on the long-term level of potential growth tends to be persistent. However, unlike previous exogenous shocks, the COVID-19 pandemic could affect the supply side of the economy through several channels and thus lead to a permanently lower level of potential output.

Keywords: COVID-19 pandemic, global economy, financial crisis, potential output levels, growth rates.

Motivated by the sluggish recovery after the global financial crisis, a recent literature has developed showing that recessions cause persistent or ‘scarring’ effects on the level of GDP. The reason behind this are cyclical shocks that affect the supply side of the economy through several channels, thereby shaping the long-term trend (Cerra et al. 2020). As the COVID-19 pandemic constitutes an unprecedented shock to the global economy, its potential scarring effects are difficult to predict. Assessing the scarring effects of past crises might however provide some indication as to how the COVID-19 shock could affect potential output (Martín Fuentes and Moder 2021).

A local projections analysis of past epidemics suggests that their initial impact on the level of potential output is relatively short-lived, tending to dissipate two years after the end of the epidemic (see Figure 1, upper-left panel). However, it should be noted that the past epidemics considered in the analysis were – with the exception of the swine flu – mostly localised events which are not comparable to a major global pandemic (see also Jordà et al. 2020, who find significant long-lasting macroeconomic consequences from 15 major pandemics since the 14th century). We hence additionally consider the impact of two other exogenous crises on potential output: the 1973-74 oil embargo imposed by the Organization of the Petroleum Exporting Countries (OPEC), which can be regarded as an exogenous negative supply shock for the affected countries, and major wars. Our results suggest that the oil embargo only had a negative effect on potential output in the first year after the shock (upper-right panel). Similarly, the results for major wars (lower left panel) suggest that following a severe initial impact, post-war economic recoveries tend to be steep and with no significant longer-lasting scarring effects (i.e. beyond four years).

Figure 1 Scarring effects of past epidemics and other crises on potential output levels

Sources: ECB staff calculations based on Feenstra et al. (2015) and Laeven and Valencia (2018).
Note: The continuous lines indicate the impact of the respective event in year t on the level of potential output up to the period t+8, i.e. eight years after the end of the event, and the shaded areas depict the 95% confidence interval. The impact on potential output is estimated with a local projections approach, based on a global panel that includes all events simultaneously, four lags of potential output growth to control for endogeneity, and country-fixed effects. As most of the epidemics considered in the analysis are relatively recent, the sample only allows their impact to be calculated until four years after the end of the epidemic. Potential output is defined as the level of output that is consistent with the productive capacity of an economy.

In contrast, financial crises are associated with a significant and very persistent downward shift in potential output. The results for past financial crises (as examples of endogenous crises, i.e. those triggered by the accumulation of economic imbalances) suggest a loss of around 5% even after eight years, in line with the recent literature discussed above. This is supported by the fact that, for recessions caused by financial crises, no overshooting in growth rates can be observed after the end of the recession, pointing to long-lasting scarring effects on the level of potential output (see Figure 2). This is different from the exogenous crises (i.e. epidemics, the OPEC embargo and wars), where the initial contraction is followed by above-normal growth rates, bringing the economy’s potential output back to its long-term trend path.

Figure 2 Impact of past epidemics and other crises on potential output growth

Sources: ECB staff calculations based on Feenstra et al. (2015) and Laeven and Valencia (2018).
Note: The continuous lines indicate the impact of the respective event in year t on the growth rate of potential output up to the period t+8, i.e. eight years after the end of the event, and the shaded areas depict the 95% confidence interval. The impact on potential output is estimated with a local projections approach, based on a global panel that includes all events simultaneously, four lags of potential output growth to control for endogeneity, and country-fixed effects. As most of the epidemics considered in the analysis are relatively recent, the sample only allows their impact to be calculated until four years after the end of the epidemic. Potential output is defined as the level of output that is consistent with the productive capacity of an economy.

In order to gain more insights into how past financial crises left scarring effects on potential output, the local projections approach is applied to the individual components of potential output.7 Our results indicate that all three supply-side components of the production function are initially affected by a financial crisis (see Figure 3). While the negative impact on total factor productivity and labour input starts to subside after approximately three years, there are adverse and persistent effects on the capital stock, which is the main source of the long-term scarring effects of financial crises.

The jury is still out on whether the long-term impact of COVID-19 will resemble more those of the epidemics and other exogenous shocks examined above (i.e. no scarring effects) or those of financial crises (i.e. persistent scarring effects). Looking at the individual components of potential output, COVID-19 could negatively affect the capital stock similarly to past financial crises. Capital depreciation is likely to have increased as a result of COVID-19, especially in capital-intensive sectors hit by the crisis such as the airline industry, where parts of the capital stock could become obsolete, as well as in other sectors that are struggling as a result of the demand shock. Furthermore, post-crisis public finance consolidation needs combined with difficult economic prospects for companies may contribute to a period of protracted under-investment.

Figure 3 Impact of financial crises on supply-side components of potential output

Sources: ECB staff calculations based on Feenstra et al. (2015) and Laeven and Valencia (2018).
Notes: The bars indicate the impact of financial crises on the respective supply-side components after the number of years shown since the end of the crisis. The error bars represent a 95% confidence interval. The impact on potential output is estimated using a local projections approach, based on a global panel that includes all events simultaneously, four lags of potential output growth to control for endogeneity, and country-fixed effects. Potential output is defined as the level of output that is consistent with the productive capacity of an economy.

As the COVID-19 shock has above all hit labour-intensive sectors, the initial impact on labour supply could be stronger compared with past financial crises. With the exception of transport, the sectors most affected by the COVID-19 containment measures (i.e. retail trade, accommodation and food services, entertainment and recreation) tend to be more labour- rather than capital-intensive (see Figure 4). At the same time, even sectors not targeted by the lockdown measures may have been hit indirectly through reduced sales of intermediate goods to affected sectors (Laeven 2020). Whether those employment losses will become more permanent will depend on the speed of the reallocation of workers across sectors and firms. Pandemic-related labour market consequences, such as a reduction in the labour force due to an increase in the number of discouraged workers or more limited global migration flows to advanced economies, might lead to a sustained contraction in the labour force. This contraction, combined with the impact on the accumulation of human capital from widespread school closures, could exacerbate the loss in labour supply (Burgess and Sievertson 2020). At the same time, it should be recognised that the losses depend on the policy response and the success of labour market policies in mitigating these effects.

Figure 4 Sectoral losses as a result of the COVID-19 containment measures and capital/labour intensity ratio

Sources: ECB staff calculations, Adarov and Stehrer (2019) and Stehrer et al. (2019).
Notes: Sectoral losses as a result of the COVID-19 lockdown measures are based on an ECB staff assessment for a sample of globally systemic countries and calculated as an unweighted average. The capital/labour intensity ratio is calculated as the fixed capital stock (in 2017) divided by the labour input (in number of employees in 2017) for each sector, based on the unweighted average of a sample of 19 countries.

The COVID-19 crisis could affect total factor productivity in several ways. First, the impact of COVID-19 could temporarily lock resources in unproductive sectors, and the reallocation of productive resources towards fast-growing industries is likely to take time. In addition, innovation could be impaired through lower spending on research and development, both in the public sector on account of consolidation needs and in the private sector owing to elevated uncertainty. Furthermore, reshoring of global value chains in the aftermath of the COVID-19 crisis could hamper innovation and knowledge spillovers across countries. At the same time, the increased use of digital technologies spurred by the COVID-19 crisis has the potential to accelerate the digital transformation of the global economy and therefore contribute positively to total factor productivity.

1 febbraio 2021

BALÁZS ÉGERT, YVAN GUILLEMETTE, FABRICE MURTIN, DAVID TURNER

Epidemiological and economic consequences of government responses to the COVID-19 pandemic

(synthesis; full article – VoxEu CEPR 02 January 2021 – : https://voxeu.org/article/epidemiological-and-economic-consequences-government-responses-covid-19)

 Abstract: Policymakers have faced a crucial trade-off between curbing the spread of the Covid-19 pandemic and minimising further damage to economic activity. Employing reduced form econometric estimates of the Covid-19 pandemic, this column seeks to quantify the impact of government interventions on disease progression and mobility.It finds that 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.

Keywords

Covid-19 pandemic, epidemiological models, diseases dynamics, economic activity, government interventions, containment policies.

Since the onset of the Covid-19 pandemic, parameterised epidemiological models (‘SIR’ models, for Susceptible, Infected, and Recovered) have been a popular tool to analyse the diseases dynamics (Anderson et al. 2020, Atkeson et al. 2020). These models can be used to shed light on the impact of physical distancing and other public health measures in containing waves of infections (Aschwanden 2020, Ferguson et al. 2020, Davies et al. 2020). SIR models rely on several parameters (for instance, to quantify the impact of physical distancing on the reproduction rate of the virus, or R), so their insights are only as good as the accuracy of their parameters.

By contrast, our study (Égert et al. 2020) contributes to a burgeoning literature that seeks to quantify the impact of government interventions on disease progression and mobility, employing reduced-form econometric estimates for the Covid-19 pandemic. This literature has already shown that stricter lockdown policies go in tandem with a reduction in Covid-19-related deaths (Conyon et al. 2020). It has found strong evidence in favour of banning mass gatherings as one of the most effective ways of taming the spread of the virus (Ahammer et al. 2020). Similarly, air travel restrictions are found to be effective, especially those imposed on national and international flights and at the early stages of the pandemic (Hubert 2020, Xiong 2020). Stay-at-home requirements and workplace closures can also curb the propagation of the disease (Deb et al. 2020), as can the use of face masks (Chu et al. 2020, Betsch et al. 2020). Nevertheless, the recent empirical literature has said little about the importance of testing and contact tracing policies despite their prominence in SIR models (Aleta et al. 2020), and the protection of the elderly population.

In most OECD countries, a combination of public health and containment measures, often involving a shutdown of major parts of the economy, was successful in reducing the spread of the pandemic in the first half of 2020. Having lifted many restrictions, the dilemma many policymakers are now facing is how to deal with subsequent waves of infection without inflicting significant damage on economic activity as caused by the measures deployed in response to the first wave. Our study attempts to inform these decisions by examining country experiences at a daily frequency during the period from March to mid-August, with a focus on how the reproduction number, R, and the physical mobility of people (a proxy for economic activity) respond to policy measures. Indicators of containment policies from the Oxford Blavatnik School of Government are complemented with public health indicators assembled for the study.

Figure 1 shows that, based on estimation results from an econometric model with the log of R and mobility, the combined effect of applying all containment polices – including stay-at-home requirements, workplace and school closures, restricting public gatherings, and imposing limits to international travel – would nearly halve the reproduction number, from an initial R value of about 3.

Results further suggest that test and trace policies can reduce the spread of the virus. The most comprehensive form of such policies are more than two and a half times more effective in reducing R than more limited forms. Test and trace polices are most effective when the infection rate is not too high (which in estimation is taken to be less than ten new daily cases per million population – a rate which was well exceeded in many countries in March and April). This is a rather unsurprising finding given the difficulties of tracking down all contact persons in a timely manner if the system is overwhelmed with new cases. Overall, the most effective test and trace regime, in an environment of low daily infections, is estimated to be more effective than any other public health intervention and two to three times more effective than most individual containment measures. Policies aiming at shielding the elderly population can also play an important role, as the testing of residents and staff in long-term care facilities and general stay-at-home recommendations for the elderly are associated with fewer infections. The combined effect of these polices on reducing R is estimated to exceed the effect of most individual containment measures. Regarding masks, results show a sizeable and fairly robust negative effect on R from the introduction of mandatory mask wearing in all closed public spaces, although other results (not reported) suggest that extending mask wearing obligations to the outdoors does not appear to add much to reducing the reproduction rate.

The national and global daily death rates are used as proxies for the severity of the pandemic, which by itself could drive spontaneous changes in behaviour irrespective of policy measures. The national cumulative death rate is used to control for the possibility that built-up population immunity could lower R over time. Coefficient estimates on all three variables are statistically significant and their magnitudes imply that spontaneous changes in behaviour and immunity have played an important role in the evolution of R.

Figure 1The determinants of the log reproduction rate and physical mobility of people

Turning to the policy drivers of mobility, empirical results suggest that seven of the eight categories of containment policies have a negative effect on mobility. There is a clear ranking of coefficients, so that the more stringent application of a particular policy tends to reduce mobility to a greater extent. For example, the most severe form of workplace closure (a score of three) has nine times the effect on mobility as that of the mildest form (a score of one). These findings suggest that moving to the more stringent forms of workplace closure, stay-at-home requirements, and school closure has large negative effects on mobility and hence economic activity, although it is difficult to detect any corresponding benefit from further reductions in R. In contrast, for policies such as the cancellation of public events and travel restrictions, the most limited application of the policy has no significant effect on mobility. Applying all containment policies in their most severe forms would reduce mobility by more than half relative to normal, with 50% of this reduction accounted for by workplace closures and stay-at-home requirements. Alternative estimations, not reported here, explored the effect of mask-wearing on mobility. The estimated positive coefficient estimates suggest that mandating mask wearing in public transports and shops raises mobility, possibly by reducing concerns about infection. The national daily death rate from the virus is again included to proxy general awareness of the virus and its effect in voluntarily reducing mobility due to an increase in natural caution. A national daily death rate running at around 15 per million – similar to the rate experienced by some of the major OECD countries going into the lockdown in March – is estimated to reduce mobility by 10%, independently of any government-mandated polices.

These estimates are consistent with much of the above literature. Containment policies can successfully reduce the spread of the virus, but most have a substantial impact on mobility and, by implication, economic activity; in particular stay-at-home requirements, workplace closures, and school closures. Most importantly, unlike earlier empirical studies, the results strongly support the view that testing, combined with effective contact tracing are key components of the post-lockdown strategy, especially at relatively low level of infections (OECD 2020). This corroborates a recent outbreak modelling study (Hellewell et al. 2020), which found that contact tracing and isolation would only contain outbreaks of Covid-19 if very high levels of contact tracing were achieved. This is also consistent with the view that testing and tracing is most effective in a low-infection environment, because contact tracing becomes increasingly difficult with higher levels of new daily infections (Hellewell et al. 2020). Furthermore, estimation results suggest that mask-wearing and the protection of the elderly population in general and those in care homes in particular might play an important role in combating the virus.

25 gennaio 2021

MICHELE LIMOSANI

L’altra pandemia Il ritorno dello Yeti e la questione riforme (seconda parte)

(synthesis; full article – Tempostretto 17 January 2021 – : https://www.tempostretto.it/news/limosani-laltra-pandemia-il-ritorno-dello-yeti-e-la-questione-riforme-seconda-parte.html )

Abstract: la seconda parte dell’analisi della crisi economica in corso, la più grave da quella del 1929, e sulle conseguenze del Covid-19 sul fronte economico e occupazionale. La crisi mette in evidenza la necessità d introdurre alcune riforme e, in particolare, quelle della pubblica amministrazione, della giustizia e dei rapporti Stato-Regioni. Queste riforme sono necessarie e vanno affrontate con decisione, per cui il ruolo dello Stato in alcuni casi diventa essenziale ed insostituibile come nel caso dei “Beni Pubblici” (salute, difesa, legalità, istruzione), situazione nella quale il libero mercato è incapace di assicurare una distribuzione giusta e ottimale delle risorse.

Keywords

Pandemia, crisi economica, politica delle riforme, ruolo dello Stato, economia di mercato

La crisi economica ha riportato al centro del dibattito politico due questioni di carattere istituzionali: il ruolo dello Stato in un’economia di mercato e le politiche delle riforme. Riguardo al primo tema ritengo che “Il buon funzionamento del mercato dipenda dal buon funzionamento dello Stato e che le due istituzioni non sono tra loro alternative ma reciprocamente dipendenti”. Ed il ruolo dello Stato in alcuni casi diventa essenziale ed insostituibile come nel caso dei “Beni Pubblici” (salute, difesa, legalità, istruzione), situazione nella quale il libero mercato è incapace di assicurare una distribuzione giusta e ottimale delle risorse. La vera questione è la ricerca di un nuovo punto di equilibrio per evitare di “buttare l’acqua con tutto il bambino”. Lasciamo fare al mercato tutto ciò che esso può fare bene resistendo (Alitalia, ILVA docet) al ritorno incondizionato di un vecchio e inefficiente statalismo, il ritorno dello Yeti.

La necessità delle riforme

Durante la crisi ci siamo resi conto, altresì, della necessità di introdurre alcune riforme e, in particolare, quelle della pubblica amministrazione, della giustizia e dei rapporti Stato-Regioni. Queste riforme sono necessarie e vanno affrontate con decisione. Ma è quello della crisi il momento opportuno per intervenire e proporre quelle riforme tanto attese e a vantaggio di tutti, necessarie per far compiere un salto di qualità al paese e per fare ripartire la crescita? Su questo tema gli studiosi sono divisi ma il tema è troppo importante per essere eluso ancora una volta dalla classe politica.

La crisi come opportunità o rischio; gli effetti sul sistema produttivo e sul mercato del lavoro.

Alla luce dei bilanci, delle condizioni patrimoniali di partenza e dei livelli di indebitamento raggiunti, molte piccole e medie imprese, soprattutto nel mezzogiorno, hanno una probabilità di default elevata. Ciò che più preoccupa, quindi, è la pesante perdita di potenziale produttivo che ci aspetta dopo il Covid e l’impatto che ciò produrrà sul mercato del lavoro e poi sulle condizioni finanziarie del sistema bancario.

Chi fa boom e chi “scoppia”

Certo, va rilevato che la crisi ha prodotto effetti positivi su molti settori produttivi determinando una significativa redistribuzione di ricchezza all’interno del mondo delle imprese. I settori agroalimentare, elettronica, logistica, informatica, grande distribuzione, hanno infatti registrato un boom di fatturato durante il periodo covid. Alcune imprese, quindi, spariranno, altre si rafforzeranno; nuove imprese emergeranno e con esse nuove opportunità di lavoro. Ma nel caso di serie difficoltà di sopravvivenza delle imprese medio-grandi, lo Stato sarà chiamato ad intervenire? E quali imprese salvare e quali lasciare andare? Quali criteri seguire? Quali le modalità di intervento?

Chi ha pagato la crisi

Rimane, infine, sullo sfondo il tema degli effetti distributivi sui redditi delle famiglie generati dalla crisi. Chi ha pagato di più, tra le famiglie italiane, il prezzo della crisi? -vedi il tema garantiti vs non garantiti– E’ opportuno intervenire sulla nuova distribuzione dei redditi? E quali politiche attuare per limitare e ridurre gli effetti redistributivi? Sono questioni complesse ma nello stesso tempo fondamentali per lo sviluppo futuro del paese e richiedono pertanto serie ed equilibrate riflessioni.

La scommessa sul futuro: Il Piano di resilienza e di ripresa

L’ultimo intervento economico nel nostro paese paragonabile -per dimensione di risorse finanziarie mobilitate- a quello previsto dal Next Generation Plan europeo è stato il Piano Marshall, piano voluto dagli americani per favorire la ricostruzione dei paesi europei distrutti dalla guerra. Non possiamo perdere o arrivare in ritardo a questo appuntamento. Ora, è quasi scontato che la sostenibilità del debito pubblico in un certo paese sarà giudicata dai mercati finanziari sulla base dei tassi di crescita dell’economia, e quindi di come verranno spese le risorse del Next Generation Plan; i tassi di interesse, infatti, rimarranno molto bassi per ancora un pó di tempo. Se dunque le risorse del Piano saranno sprecate il debito pubblico alla fine potrebbe diventare insostenibile.

I progetti da scegliere

Nei paesi con un elevato debito pubblico, inoltre, il governo nazionale dovrà fare una valutazione ancora più attenta e rigorosa dei progetti da finanziare. I progetti, certo, potranno essere sia di natura prettamente economica che sociale e non tutti produrranno effetti nel breve periodo perché, come è noto, la ricerca scientifica e l’innovazione tecnologica hanno rendimenti differiti nel tempo. Ma è sull’impatto che ogni progetto produrrà sulle nuove opportunità di lavoro che si gioca la grande sfida. Non è questo il momento per pensare a sostegni e sussidi.

Tante quindi sono le questioni economiche che nel futuro dovranno essere studiate ed approfondite per lasciare alle future generazioni un patrimonio di idee, di conoscenze e di riflessioni su un evento che ha segnato profondamente il nostro tempo e le cui conseguenze sono, ancora per molti versi, inesplorate.

20 gennaio 2021

MICHELE LIMOSANI

L’altra pandemia. Gli effetti economici del Covid 19 (prima parte)

(synthesis; full article – Tempostretto 16 January 2021 – : https://www.tempostretto.it/news/limosani-laltra-pandemia-gli-effetti-economici-del-covid-19-prima-parte.html)

 Abstract: Una analisi approfondita della crisi economica in corso, la più grave da quella del 1929, evidenzia gli scenari che abbiamo davanti in questo momento cruciale per l’economia mondiale, e gli effetti che il Covid-19 produrrà sul sistema economico e sociale del nostro paese.

Keywords

Covid-19 pandemic, economic activity, global crisis, global action, containment policies.

Un esame esaustivo degli effetti che la pandemia produrrà sul sistema economico e sociale del nostro paese è difficile da compiere; anche per il semplice motivo che la crisi è in corso d’opera e solo il tempo potrà restituirci un quadro completo della situazione. Dal punto di vista di chi studia i temi della Politica Economica, tuttavia, è possibile avanzare alcune brevi -anche se parziali- riflessioni su quelli che sono le questioni fondamentali che questo tempo pone alla nostra attenzione e che meritano analisi rigorose ed approfondite.

Un evento epocale

Questa crisi sarà studiata dalle future generazioni. E’ la più grave crisi dopo quella del 1929 e la fila di persone in cerca di cibo registrata nelle scorse settimane a Milano, e ripresa da tutti i media e le tv nazionali, ha richiamato alla nostra mente proprio le immagini degli anni ‘30 a New York. Questa crisi racchiude in sé contemporaneamente le cause delle tre precedenti recessioni: crisi da domanda (come appunto quella degli anni trenta), crisi da offerta (blocco delle attività produttive) come quella degli anni settanta caratterizzati dalla esplosione dei prezzi del petrolio), crisi finanziaria (come quella del biennio 2008-2009) di cui si colgono i primi segnali sui mercati finanziari e sulle oscillazioni dei titoli quotati in borsa, ma che non ha ancora dispiegato tutti i suoi effetti. Mario Draghi è intervenuto nei giorni scorsi anticipando che il peggio non è ancora passato e che le banche possono finire sotto tensione per via dei potenziali crediti che andranno in sofferenza.

Crisi extra economica

È, inoltre, una crisi diversa dalle altre perché ad originarla non sono fattori economici e sociali ma una causa extra economica (sanitaria). Ciò genera, a sua volta, una profonda incertezza sui relativi tempi di uscita. Nonostante gli effetti annunciati dovuti all’erogazione del vaccino, il Governatore della Banca D’Italia ha di recente affermato che dovremo aspettare la fine del 2023 per veder ritornare il livello del PIL a livelli pre-covid.

Crisi globale risposta globale

Il riduzionismo non funziona; questioni globali necessitano di risposte globali. Il virus, lo abbiamo visto, non ha conosciuto confini e, atteso l’elevato grado di integrazione e di interdipendenza tra i diversi paesi, la crisi economica è diventata mondiale. Uno stato di crisi globale necessita risposte di politica economica coordinate a livello internazionale; in primo luogo tra quei paesi (Stati Uniti, Cina ed Europa) che insieme determinano l’80% circa della produzione mondiale, e poi, per quanto riguarda il nostro paese, a livello europeo.

Certo, ricorderete tutti, dopo una non brillante partenza con le affermazioni della Lagarde, l’Europa ha recuperato ed è stata all’altezza del compito ad essa affidata; difendere l’euro e l’economia degli stati europei. La Banca Centrale ha lanciato un piano di acquisto rinforzato per oltre 1100 miliardi di titoli del debito pubblico sui mercati finanziari secondari. La commissione ha varato diversi strumenti di prestito a tassi bassissimi per coprire spese sanitaria, cassa integrazione, prestato garanzia al sistema bancario per prestiti alle imprese, eliminato il vincolo del patto di stabilità.

Operazioni colossali

L’Italia da sola, con la sua moneta, non sarebbe stata in grado di difendere il paese. Le operazioni colossali di creazione di denaro da parte delle banche centrali sono sostenibili senza il collasso del tasso di cambio, fughe di capitali, ed impennate dei tassi (come è successo recentemente in Argentina) solo con una Banca Centrale in grado di emettere una moneta considerata dai mercati come riserva globale.

Verso il Green New Deal

La crisi economica e sanitaria quindi -e questo è il punto centrale- segna un’accelerazione nel processo di costruzione e di completamento dell’Unione Monetaria Europea (Riforma Fiscale) e sulla necessità di condividere un rinnovato paradigma economico e sociale (Green New Deal), rafforzare i sistemi democratici e selezionare una nuova leadership europea in grado di governare questo processo.

18 gennaio 2021

 ETHAN ILZETZKI

Post-Covid-19 potential output in the euro area

(synthesis; full article – VoxEu CEPR 02 January 2021 – : https://voxeu.org/article/post-covid-19-potential-output-euro-area)

 Abstract: Global economic activity took a large hit during the Covid-19 pandemic, and the euro area was no exception. This column 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.

Keywords

Covid-19 pandemic, Global economic activity, euro area, economy’s productive capacity.

Global economic activity took a large hit during the Covid-19 pandemic. The euro area is no exception, with the ECB currently projecting an 8% decline in GDP this year and that GDP will only recover to its pre-pandemic level at the end of 2021. But looking five years ahead, the ECB has made no change to its long-run growth forecast (of 1.4% in five years’ time) throughout the pandemic. This particular forecast suggests a permanent loss in the level of GDP, but no effect on its growth in the long run. Yet, the long-run effect of Covid-19 on the euro area’s economic potential remains very uncertain.

Bodnár et al. (2020) give an overview on the theory and evidence on the effects of Covid-19 on the euro area’s potential output (defined as the maximal level of economic activity that an economy can sustain at current technology, labour supply, and capital stock, without leading to inflationary pressures). There are several reasons to think that Covid-19 may have persistent effects.

First, supply chain disruptions can cause a decline in the economy’s productive capacity, but how persistent these are is still uncertain. Vinci and Licandro (2020) point out the role of monetary policy interventions in preventing the destruction of productive capacities following large negative shocks. Second, it may take time for new entrants to replace firms that failed due to Covid-19. Third, unemployment tends to be persistent as workers’ skills deteriorate and their attachment to the labour force may weaken. Fatás and Summers (2017) give evidence of hysteresis effects of this sort.

Fourth, corporate debt overhang may create ‘zombie firms’, which have lesser incentives to invest in productive capital. However, Jordá et al. (2020) find no historical support for post-crisis growth depending on corporate debt levels. Fifth, there is some theoretical support for the notion that low demand may have scarring effects on the economy due to underinvestment in capital or innovation, whether the recession originated from the demand or supply side (Benigno and Fornaro 2018, Fornaro and Wolf 2020, Benedetti-Fasil et al. 2020). Finally, pessimistic forecasts of long-run growth can be self-fulfilling because policymakers are more likely to enact fiscal consolidation if they foresee a permanent loss in output. This, in turn, could secure the drop in GDP due to lower demand (Heimberger 2020).

There are also reasons why Covid-19 may increase the economy’s long-run growth potential. It may have accelerated the implementation of new technologies. Further, it has led to improvements in health investments, and could continue to do so.

The December 2020 CfM-CEPR survey asked members of its European panel to estimate the loss in the level and growth rate of potential GDP in the euro area due to the Covid-19 pandemic.

Question 1: How much lower will the potential level of GDP in the euro area in 2025 be due to Covid-19 relative to pre-Covid forecasts?

Forty-three panellists responded to this question. A majority (51%) of the panel predicts that the level of potential GDP will be 2-5% lower in 2025 than it would have otherwise been absent Covid-19. In other words, they predict a permanent loss in income due to Covid. However, nearly 40% of the panel predicted a small or negligible cost in terms of the level of GDP, with 21% predicting that potential GDP will decline by 2% or less, and 19% that it will not decline at all.

The more pessimistic responses note that GDP losses in deep recessions tend to be permanent. Roger Farmer (University of Warwick) points out that “[a]fter a major shock, and COVID certainly qualifies as major, there is little or no tendency to return to a give[n] path.” Several participants pointed to factors that were unique to Covid-19 and may have a longer-term effect. David Miles (Imperial College) referred to the “[e]ducation disruption and failure of firms allied with a sharp rise in unemployment” as factors affecting the economy in the long run. Francesco Lippi (LUISS) highlights other scarring factors including “higher public and private debts [and] more unemployment.” Other respondents voiced concern that political and social factors may further hamper the recovery. Etienne Wasmer (Sciences Po) argues that “[t]his is a break in the trend, and Europe has traditionally be[en] slow to adjust to a new organization, it will indeed take 5 to 10 years to adjust.” Ramon Marimon (European University Institute and UPF-Barcelona GSE) points directly to EU politics: “The main problem is not the potential level in the euro area in 2025, but how the euro area divide, which already increased after the financial-euro crisis, will be in 2025?”

The optimists noted that Covid-19 may also be viewed as a creative destruction shock. Francesco Lippi, while noting the risks of scarring effects above, believes potential GDP could be higher because “[t]he shock pushed many firms to adopt new technologies that may be cost effective in the medium run and increase potential output and welfare.” Robert Kollmann (Université Libre de Bruxelles), while predicting a minor loss to long run GDP, adds that “households and firms have been forced by the Covid crisis to upgrade their IT skills and equipment, and new ways of organizing office work, production and distribution have been invented. In addition, the crisis could accelerate the transition to greener technologies.” Others credit good macroeconomic policy to their rosier forecasts. John Hassler (IIES, Stockholm University) predicts that “[m]ost likely, the fundamental cause of the crisis will vanish this year. Due to very forceful policies, the initial shock did not lead to self-reinforcing feedbacks – a quite possible scenario with a financial crisis leading to perhaps even a depression was avoided.” However, Thorsten Beck (Cass Business School) warns that the outcome depends on future policies as well: “The impact of COVID-19 on potential GDP will depend a lot on policy responses. So far, these policy responses have been appropriate, trying to minimise negative effects. But political doubts remain whether they can be continued long enough to avoid damage.”

Finally, several panel members argued that the euro area should not be viewed as a single economy and that there will be large differences across countries in the pace of recovery. Jagjit Chadha (National Institute of Economic and Social Research), for example, points to “considerable heterogeneity across EA countries because of their respective reliance on socially intensive activities, the scope for available fiscal responses and the effectiveness of the health and social care infrastructure.”

Question 2: How much lower will the potential growth rate of GDP in the euro area in 2025 be due to Covid-19 relative to pre-Covid forecasts?

Forty-seven members of the panel responded to this question. The vast majority (81%) predicted that the euro area’s potential growth rate will be unaffected by Covid-19 or forecasted small losses of half a percentage point or less.

Some panellists based their responses on past recessions. Jumana Saleheen (CRU Group) reminds us that “[i]n previous crisis we have seen an impact on the level of potential GDP but not on its growth.” Other panellists argued that none of the long-run drivers of economic growth have been adversely affected. As Jordi Galí (CREI, Universitat Pompeu Fabra and Barcelona GSE) puts it, “I do not see any reason to believe the forces behind innovation and, hence, potential growth, will be much different after the pandemic, one way or another.” John Hassler adds: “It is hard to see that the fundamental causes of growth, namely the creation of new ideas and the ability to adopt and exploit these for commercial and social use, are affected in the long-run by the corona crisis.”

A couple of participants were even more optimistic. Fabrizio Coricelli (Paris School of Economics) argues that Covid-19 will end up being good for economic growth: “Covid-19 may induce much needed infrastructural public investments, speed up productivity-enhancing technological innovation, also driven by environmental concerns.” Maria Demertzis (Bruegel) adds: “There are important reasons to [feel] that new technology adaption has been accelerated as a result of Covid-19.”

However, several participants warned that these optimistic forecasts depend on the policy response. Etienne Wasmer conditions that “if we are in the middle of [a] public finance crisis, it will be a -2 to -3% [hit to GDP growth], but [it’s] hard to tell whether this is in 2025, 2024 or 2023.”

21 dicembre 2020

 BARBARA BAARSMA, ELINE VAN DEN BROEK-ALTENBURG, ROBIN FRANSMAN, BAS JACOBS, CARL KOOPMANS, COEN TEULINGS

Is the current COVID-19 strategy effective?

(synthesis; full article -04 December 2020 – : https://voxeu.org/article/current-covid-19-strategy-effective)

Abstract: The aim of the Dutch government’s current policy to combat COVID-19, as in many other countries, is to reduce the number of infections as much as possible. This column argues that recent data show that societies can handle a much larger number of infections during this second wave without excessive social costs, and that the Dutch policy should therefore move away from almost eliminating infections towards creating herd immunity by letting the COVID-19-virus circulate more freely among the non-vulnerable groups, while strictly protecting the vulnerable groups.

Keywords: COVID-19 pandemic, number of infections, virus circulation, vulnerable groups

The current policy to combat COVID-19 in the Netherlands aims at reducing the number of infections as much as possible, like in many other OECD countries. The government states as its objective to reduce the number of infected persons from its peak of 10,000 per day around 25 October beyond the current 5,000 per day to much lower numbers. In this column, we question the wisdom of this policy.

When the first wave of COVID-19 hit, policymakers all over the world had to take far-reaching decisions based on limited information, mainly from China. Across the EU, countries have been quite effective in simultaneously containing the spread of the virus with lockdowns, while providing liquidity support to firms and social assistance to workers that were hit hardest by these lockdowns. Since we are now in the middle of the second wave, we have to consider the best way to move forward from our current state, which is entirely different than in East Asia.1

There are essentially three strategies in responses to contain the pandemic:

  • The first strategy is to attempt to eradicate the virus altogether, as China successfully did in response to 2002-2003 outbreak of SARS. This virus eventually became extinct by strictly isolating all infected persons.
  • The second strategy is the exact opposite of the first – let the virus roam freely in the population to achieve herd immunity as quickly as possible and accept the casualties as the inevitable cost. This strategy is used routinely in response to the annual waves of the flu virus.
  • The third strategy is to strictly contain the spread of the virus among vulnerable subgroups of the population whose health is severely affected by a COVID-19 infection, thereby avoiding excess casualties and overburdening the healthcare system, while waiting for either a vaccine or herd immunity to end the pandemic.

Since the second strategy is not considered an option by Dutch policy makers for the COVID-19 crisis, we focus on the first and third. Reducing the number of infections is consistent with the first strategy, while it is a waste when pursuing the third. The third strategy limits the number of susceptible persons by achieving herd immunity. As long as vulnerable subgroups can be isolated, infections for the remaining population aren’t a problem. Infections accelerate achieving herd immunity, thereby reducing the time that the vulnerable subgroups are exposed.

The difference in the role of infections in both strategies can be phrased in terms of externalities. In the first strategy, an infected person imposes a negative externality on the rest of the population by being a source of further infections. This negative externality justifies government-imposed lockdown policies to internalise the externality. In the second strategy, an infected person imposes a positive externality on the population, by being immune after infection and hence contributing to a protective wall against further contagion. Counterintuitively, the government may even have to stimulate infections among the less vulnerable subgroups of the population. Ignoring this third strategy of a selective lockdown explains why Alveda et al. (2020) conclude that a strict lockdown is the only way forward for Europe and the US.

Four parameters are critical for the choice between both strategies:

1)The number of infected persons– the higher this number, the further the first strategy gets out of reach

2)The ratio of casualties to infected persons– the lower the infection fatality rate, the lower the number of casualties during the transition-period towards herd immunity

3)Heterogeneity in vulnerability by age and pre-existing medical conditions– the sharper the distinction, the better the prospects of isolating the vulnerable subgroups

4)The likelihood that there will be a working vaccine and the expected time lag until a sufficient supply will be available– the higher the likelihood, the lower the benefits of achieving herd immunity.

The current experience suggests that it is becoming increasingly difficult to contain the number of new infections. A new package of restrictions (closing down bars and restaurants and tighter constraints on group sizes at family events) announced in the Netherlands in mid-October have reduced the number of new infections from 10,000 to fewer than 5,000 per day by mid-November. However, in the meantime, the number of infections is rising again. If the current policy of containing the number of infections is continued, stricter measures will be required.

The rise in infections is partly due to policy fatigue among the population. However, it is also an endogenous response, since infection rates among subgroups are heterogeneous. Initially, the majority of COVID-19-infections came from a broad middle group with moderate infection rates. Mild policy measures have reduced their infection rate such that their reproduction rate R got below one. However, as time goes by, infections in subgroups with high infection rates, which are less likely to strictly follow lockdown restrictions (for example, due to language barriers or because they don’t follow the news), start dominating the total number of infections if the exponential growth rate of infections in these subgroups outpaces that in the broad middle group. It requires increasingly costly measures to bring the R of these high infection-rate groups below unity. Therefore, heterogeneity in infection rates provide another argument to strive for herd immunity. Indeed, Britton et al. (2020) show that herd immunity might even be reached when just 40% of the population is immune to the virus due to this heterogeneity.

This evidence casts serious doubts on the efficacy of the Dutch government’s current policy. The government states as its objective that it wants to reduce the number of infections from its peak of 10,000 persons per day around 25 October 25, beyond its current value of 5,000 persons per day, to much lower numbers. The question is: what goal is served by this policy objective? On the one hand, the soaring number of infections and the relatively mild impact on the number of casualties suggest that herd immunity can be achieved within a reasonable amount of time. On the other hand, the increasing difficulty in keeping the number of new infections down by further restrictions suggests that there is no alternative to herd immunity until a vaccine becomes available in sufficiently large numbers.

Our ambition is not to provide a full-fledged social cost-benefit analysis. Such an analysis would require a proper, well-defined baseline scenario for what would have happened without policy interventions. We simply have no realistic way of addressing this question. Instead, we provide some numbers to put the cost of the current policy strategy into perspective.

First, the impact of COVID-19 on life expectancy is small. For the age group between 75 and 85, whose life expectancy has been most affected, the effect on the life expectancy at birth is only one to two weeks.4 The secular increase in our life expectancy at birth, enabled by the unprecedented improvement in our prosperity since WWII, is about five weeks per year. COVID-19 costs the most severely affected generations therefore one third of the annual improvement in life expectancy.

Second, the risk of prolonged recessions due to a second or even third wave of lockdown policies is substantial. The cost of such recessions can be large and long lasting (De Long and Summers 2012). Moreover, recessions also generate substantial long-term health costs. Sullivan and Von Wachter (2009) and Schwandt et al. (2020) have shown this for the US. For example, people who entered the labour market during the deep recession in 1982 were less likely to marry and to have children and more likely to divorce. They suffer from ‘illnesses of despair’ – lung cancer, liver disease, and drug addiction. Their life expectancy was negatively affected by between six and nine months, much larger than the effect of COVID-19 for the age group between 75 and 85. One might presume that these costs are smaller in the EU than in the US, due to the more extensive European welfare state. However, these number are instructive to put the cost of COVID-19 into perspective. COVID-19 turns out to yield a similar cost in terms of lost life years as a recession with an increase in the unemployment rate of between 1.5 and 2% percentage points.

Third, the importance of education for almost all aspects in life – wellbeing, life expectancy, earnings capacity, crime, social behaviour – has been well documented. The cost of interruptions in the education process are therefore substantial. …

Fourth, the healthcare system is currently operating under severe stress. One wonders what the most important explanation for this stress is – COVID-19 itself or the lockdown policies to counter it? Since the number of casualties at the peak of second wave was about half that of the first wave, casualties alone can hardly offer a full explanation for the stress on the system. There is substantial sick-leave among nurses and doctors due to the lockdown restrictions and isolation rules. The economic costs of the lockdown are measured not only in lost profit, but also in a lower capacity of the healthcare system.

Finally, Table 5 compares the worldwide number of casualties, both in absolute numbers and relative to total population, of the COVID-19 pandemic, the Spanish flu pandemic in 1918 and the Hong Kong flu in 1968. The numbers for COVID-19 are comparable to the Hong Kong flu, but much lower than the Spanish flu. Nevertheless, the policy response to the latest pandemic has been unprecedented.

Table 5 Casualties of Spanish flu (1918), Hong Kong flu (1968) and COVID-19 pandemics (2020)

Source:https://www.cdc.gov/flu/pandemic-resources/1918-pandemic-h1n1.html#:~:text=It%20is%20estimated%20that%20about,occurring%20in%20the%20United%20States

As a final note, government policy should be evaluated not only on its direct impact, but also on the broader effect of government communication of COVID-19-policy. One lesson of the Great Recession was that austerity was not expansionary and that announcements of more austerity did not inspire confidence, but rather destroyed it. Although exaggerating the dangers of an uncontrolled pandemic might help to raise the social acceptance of lockdowns and to improve the following of regulations, creating an atmosphere of imminent doom may do severe harm to consumer and business confidence and thereby kill economic activity in the long run.

In conclusion, since COVID-19 has spread widely across Europe and the US, we no longer have any chance to eradicate it; we shall have to live with it. The good news is that recent data have shown that we can handle a much larger number of infections without excessive social cost. Dutch COVID-19 policy should therefore move away from controlling infections towards creating herd immunity by letting the COVID-19-virus roam freely among the non-vulnerable groups, while strictly protecting the vulnerable groups. Currently, a daily number of infections of 8,000 (about 0.05% of the population) would seem to strike a proper balance between keeping the cost of lockdown policies manageable and speeding up the process of achieving herd immunity.

30 novembre 2020

GORDON BETCHERMAN, MAURO TESTAVERDE

How to protect jobs during Covid-19: Lessons from the Greek experience

(synthesis;  full article – VoxEu CEPR 18 November 2020 – : https://voxeu.org/article/how-protect-jobs-during-covid-19-lessons-greece)

 Abstract: The Covid-19 crisis has profoundly affected employment everywhere, but countries have adopted different strategies to try to mitigate the worst of the effects. This column compares the Greek experience to the rest of Europe, as well as to North America. The authors conclude that given the nature of the pandemic, models for managing labour market shocks will need to offer extended support where the shock persists or reoccurs. Crucially, successful policy approaches will need to be well suited for enabling job creation once conditions are in place for a restart.

Keywords: COVID-19 crisis, unemployment, employment levels, Eupean policies, labour market, Greece’s experience.

The Covid-19 crisis has profoundly affected employment everywhere. The evidence is now available on the impacts seen during the first few months of the pandemic (ILO 2020). In some countries, like the US and Canada, unemployment quickly skyrocketed to levels not seen in living memory. In others, including several in Europe, the labour market response looked very different, with few layoffs and workers remaining attached to their employer (even if they were working little, or not at all). Various factors explain these differences in how labour markets adjusted. For example, the severity of the pandemic, the structure of the economy, and the implicit social contract between employers and employees all played an important part in determining the effect of the pandemic on labour markets.

Another key factor – and perhaps the most important one – has been the different policy choices countries have taken to mitigate the economic costs of the virus and lockdowns and to protect workers (e.g. Juranek et al. 2020). Broadly speaking, countries have followed two models: one emphasising income support for those losing their jobs or livelihoods through expanded unemployment insurance and other cash transfers; the other emphasising job retention through wage subsidies, layoff restrictions, and short-term compensation schemes (OECD 2020). How successful these models were in the initial months of the crisis will offer important lessons for policymakers in dealing with the immediate consequences of future shocks. But equally important for a full assessment is how countries using different approaches respond to second (and subsequent) waves, and eventually to fully restarting their economies in a ‘post-pandemic’ world.

We have recently been able to put together a detailed picture of the early months in one country, Greece, which has followed the job retention model. More specifically, we have analysed the short-run labour market impacts of the pandemic and lockdown using survey, administrative, and online job postings data (Betcherman et al. 2020). What we found was that Greece’s job retention approach successfully mitigated the possibility of large-scale unemployment. However, the consequences of the lockdown were manifested in other ways, specifically in terms of job creation. We plan to carry out an updated analysis in the coming months to see how the labour market responded to the relaxation of the lockdown and a partial reopening of the economy.

Greece’s experience provides an interesting case study, albeit an unfortunate one (since the pandemic arrived at a time when the economy finally seemed to be recovering from the decade-long economic crisis). Especially in the early months, Greece managed the virus well, through a rapidly imposed and strict lockdown. But the cost has been a severe economic downturn (among the worst in Europe). GDP declined by 14% in the second quarter and the IMF projects that GDP will decline by 9.5% in 2020 (IMF 2020). In early November, the government announced a second lockdown which may result a further decline in the GDP numbers.

Mobility data show that, beginning in early March with the initial lockdown, Greeks stayed home. This only gradually started to change after early May (when many restrictions were lifted). But unemployment did not increase. In fact, we found that the number of separations in those months was actually lower than separations in the same months in previous years. This does not mean that the labour market was not significantly affected by the pandemic and lockdown. It was – virtually no jobs were created in these months. That is particularly noteworthy when the heavily seasonal nature of the Greek economy is taken into account. The late winter and spring are typically months when the very important tourism sector is hiring for its busy summer season. In fact, our analysis found that employment by the end of June was 12% lower than it would have been had there not been a pandemic, with the majority of these ‘missing’ jobs related to tourism.

Figure 1 ‘Missing jobs’: Actual daily employment levels in the first half of 2020 compared to expected trends based on 2018 and 2019

Source: Betcherman et al. (2020), based on ERGANI data.
Notes: Vertical lines are set in the days when the first COVID-19 case was identified (26 February 2020) and when workplace restrictions were implemented (12 March 2020).

What explains these patterns in the first months after the pandemic started – a major economic slowdown, but no increase in layoffs and all of the impact coming from a virtual halt on hiring? The answer lies in the job-retention policies that the Greek government adopted to mitigate the costs of the lockdown and protect workers. Cash transfers were available to workers on the condition they were not laid off from their employers (whose operations had been harmed by the lockdown). Moreover, layoffs were prohibited in sectors designated as affected by the crisis. So, this strategy ensured that large numbers of layoffs would not be a consequence of the shock.

Greece was one of several countries in Europe adopting job-retention approaches that experienced similar trends in the early months of the crisis. In France, the unemployment rate actually fell from 7.7% in February to 6.6% in June. Germany, in some ways the original architect of the job protection strategy (with its Kurzarbeit short-term compensation scheme), had only a slight uptick in the unemployment rate over these months, from 3.6% in February to 4.3% in June. Compare these trends to those in North America, where the emphasis was on income support more than job retention: between February and June, the unemployment rate increased by almost seven percentage points in Canada and by almost eight percentage points in the US. A similar picture emerges when we look at the job numbers in the early months. Total employment in the second quarter fell by 11% in Canada and 13% in the US, compared to just 3% in Greece and 2.5% across the EU.

Table 1 Employment and unemployment trends during the first months of the crisis in different countries

Source: OECD statistics; German Federal Statistical Office

The evidence from the early months of the crisis seems to highlight the advantages of policies that protected jobs rather than supported workers who lost them. This was also observed in the global financial crisis (Giupponi and Landais 2020, Scarpetta et al. 2020). However, some caution is needed in interpreting these trends because of the challenges in measuring labour market states like employment and unemployment during the pandemic. Many furloughed workers in Greece and other European countries may have continued to be counted as ‘employed’ but were, in fact, not working – even though measured employment in Greece fell by only 3% in the second quarter, hours worked declined by 19%.

The job-retention model offers the advantage that firms looking to ‘gear up’ again will not have to search for new employees in the labour market. However, if they will not be recalled, furloughed workers may be less likely to search for a new job than an unemployed worker, perhaps because they don’t realise their job will only exist as long as the subsidy exists. Income support models, instead, seem better suited for speedier labour market recoveries since they force the relocation of workers from firms and sectors that may no longer be viable to those with better long-term prospects (OECD 2020). Again, there was evidence of this in the financial crisis (Rothwell 2020), and initial evidence suggests this may be the case with the pandemic as well. Employment rebounded strongly in Canada and the US in the third quarter, growing at 8.6% and 6.2% respectively. With this job growth, the unemployment rates in those countries fell by 3-4 percentage points in the quarter, while the rate across the EU rose.

Given the ‘halting’ nature of the economic recovery almost everywhere, the emphasis on protecting livelihoods will need to remain a focus for some time. However, as conditions permit, strategies will need to shift toward proactive policies that enhance employment possibilities for unemployed and otherwise vulnerable workers. It is important that the pool of workers without jobs now does not become a pool of long-term unemployed workers down the road. The pandemic is accelerating technological and structural changes, so these workers will need to be prepared for the occupations and skills that will be in demand in the ‘post-Covid’ labour market (Chernoff and Warman 2020). When financing to protect workers’ incomes can be scaled back, countries will need to be prepared to reallocate funding to activation programmes that improve the efficiency of job search and job matching, and that offer relevant skills training for the new job openings. One way to meet this challenge will be to learn from the experiences gained during the pandemic with using technology to deliver programmes and services.

In summary, given the nature of this crisis, models for managing labour market shocks will not only need to provide effective protection in the short run but also offer extended support where the shock persists or reoccurs (as seems to be the case with Covid-19). Moreover, successful policy approaches will need to be well suited for enabling job creation once conditions are in place for a restart.

23 novembre 2020

ALEXANDER CHUDIK, KAMIAR MOHADDES, M. HASHEM PESARAN, MEHDI RAISSI, ALESSANDRO REBUCCI

Economic consequences of Covid-19: A counterfactual multi-country analysis

(full article – VoxEu CEPR 19 October 2020 – : https://voxeu.org/article/economic-consequences-covid-19-multi-country-analysis)

Abstract: The Covid-19 pandemic is unprecedented in its global reach and impact, posing formidable challenges to policymakers and to the empirical analysis of its direct and indirect effects within the interconnected global economy. This column uses a ‘threshold-augmented multi-country econometric model’ to help quantify the impact of the Covid-19 shock along several dimensions. The results of the analysis show that the global recession will be long lasting, with no country escaping its impact regardless of their mitigation strategy. These findings call for a coordinated multi-country policy response to the pandemic.

 KeywordsCovid-19 pandemic, Interconnected Global Economy, global recession, supply and demand.

The Covid-19 pandemic is a global shock ‘like no other’, involving simultaneous disruptions to both supply and demand in an interconnected world economy. On the supply side, infections reduce labour supply and productivity, while lockdowns, business closures, and social distancing also cause supply disruptions. On the demand side, layoffs and the loss of income (from morbidity, quarantines, and unemployment) and worsened economic prospects reduce household consumption and firms’ investment. The extreme uncertainty about the path, duration, magnitude, and impact of the pandemic could pose a vicious cycle of dampening business and consumer confidence and tightening financial conditions, which could lead to job losses and investment. Key challenges for any empirical economic analysis of Covid-19 are how to identify this unprecedented shock, how to account for its non-linear effects, how to consider its cross-country spillovers (and other observed and unobserved global factors), and how to quantify the uncertainty surrounding forecasts, given its unprecedented nature.

A rapidly growing body of research investigates the heterogeneous, non-linear, and uncertain macroeconomic effects of Covid-19 across countries, sectors in individual countries, as well as on a global scale. Pagano et al. (2020) and Capelle-Blancard and Desroziers (2020) consider the effects of the pandemic on the US stock market and highlight its differential impact on various sectors of the economy. Ludvigson et al. (2020) quantify the macroeconomic impact of Covid-19 in the US using a VAR framework and a gauge of the magnitude of the Covid-19 shock in relation to past costly disasters. Baqaee and Farhi (2020) consider possible non-linearities in response to the pandemic in a multi-sectoral model. They demonstrate how these shocks are amplified or mitigated by nonlinearities, and quantify their effects using disaggregated data from the US. McKibbin and Fernando (2020) explore the global macroeconomic effects of alternative scenarios of how Covid-19 might evolve in the year ahead, highlighting the role of spillovers. Our framework embeds the salient features of these quantitative analyses.

Covid-19 studied in a multi-country model with threshold effects 

In a recent paper (Chudik et al. 2020), we depart from single-country analyses and develop a multi-country econometric model that is augmented with global volatility threshold variables. These are intended to capture the effects of rare events such as Covid-19, and account for spillovers and interconnections of countries and markets. We first document that excessive global volatility can affect output growth in many advanced economies and several emerging markets. The novelty of our work compared to the standard threshold-regression models is that non-linearity is triggered by a measure of global uncertainty rather than country-specific shocks or volatility episodes.

Next, we estimate a multi-country model (including 33 economies) augmented with these threshold effects from January 1979 through to December 2019. Our framework (which we call a threshold-augmented GVAR, or ‘TGVAR’) is an extension of the standard GVAR model surveyed in Chudik and Pesaran (2016). Our updated model takes into account both the temporal and cross-sectional dimensions of the data, real and financial drivers of economic activity, and common factors such as oil prices and global volatility. It also distinguishes between common latent factors and regional trade linkages. Country-specific models include output growth, the real exchange rate, as well as real equity prices and long-term interest rates when available.

The Covid-19 shock is identified using the IMF’s GDP growth forecast revisions between January and April 2020, under the assumption that Covid-19 was the main driver of these forecast revisions. We then quantify the economic impact of the shock by comparing the forecast of the world economy from January 2020 to December 2021 with and without the Covid-19 shock, employing ‘generalised impulse response functions’. We account for sample uncertainty and report a range of likely outcomes by ‘bootstrapping’ the conditional forecasts based on the constellation of common, regional, and country-specific disturbances that the world economy had experienced in the past.

The impact of Covid-19 on economic activity and long-term interest rates

There are several channels through which excessive global volatility can affect economic growth. They include higher precautionary savings, lower or delayed investment (owing to increased uncertainty and weaker demand prospects), and a higher cost of raising capital (owing to higher funding costs in a volatile environment) (Cesa-Bianchi et al. 2020). Following the widespread outbreak of Covid-19, as in previous episodes of financial stress, global volatility spiked. Our country-by-country analysis establishes the importance of global volatility (whenever it exceeds an estimated threshold level) for driving subsequent output growth. For simplicity, the econometric specification only allows for intercept shifts in output growth, with threshold level (and corresponding probabilities of crossing it) estimated by maximum likelihood method for advanced and emerging economies separately.

The estimated threshold level for advanced economies is 0.156 per quarter, slightly higher than the estimate of 0.129 obtained for emerging markets (Figure 1). Note that the global volatility surpassed the 0.156 level in four quarters over the period 1979Q2 to 2019Q4 (i.e. the probability of such an event occurring is very low: about 2%). The global volatility threshold variable is statistically significant in 15 out of 19 advanced economies in our sample (80% of cases) and four out of 14 emerging economies (Figure 2). Nevertheless, threshold effects are negative in all advanced economies and all but three emerging markets. Moreover, these results become stronger when we re-run the analysis with a shorter sample from 1990.

Figure 1 Global volatility and GDP growth, 1979Q1-2020Q1

Figure 2 Estimated country-specific threshold effects, 1979Q2-2019Q4

(a) Advanced economies

(b) Emerging economies

Note: Only the gray bars are statistically significant at the 5% level.

Having shown the importance of the global volatility threshold effects for subsequent output growth, we present the estimation results of our more general ‘TGVAR’ model below. Our counterfactual analysis with this model suggests that the pandemic will likely knock three percentage points off real world GDP relative to the level of global economic activity that would have materialised in the absence of the shock (Figure 3).

The US and the UK are quite likely to experience deeper and longer-lasting effects, while China’s outcome has more than a 50% chance of being much better. The odds for the euro area are skewed negatively, but there is some probability mass that it recovers faster than the US by the end of 2021.

Figure 3 Counterfactual real GDP projections, 2020Q1-2021Q4

Note: The impact is in percent and the horizon is quarterly.

Pulled by China, the rest of “Emerging Asia” has a higher chance of performing better than the global average. Non-Asian emerging markets stand out for their vulnerability (Figure 4). They will likely suffer from a significant output collapse in the first and second quarter of 2020 and have a less than 20-30% percent chance of not experiencing an output loss by the end of 2021. Turkey, South Africa, and Saudi Arabia (grouped together as “Other Emerging Markets”) will almost certainly see at least eight quarters of severely depressed economic activity.

Figure 4 Counterfactual real GDP projections for emerging markets, 2020Q1-2021Q4

Notes: The impact is in percent and the horizon is quarterly.

Importantly, our findings underscore the role of spillovers, which we quantify for the case of Sweden, considering its distinctly different policy approach toward the pandemic. The Swedish case illustrates that no country is immune to the economic fallout of the pandemic because of interconnections and the global nature of the shock (Figure 5).

Figure 5 Counterfactual real GDP projections for Sweden, 2020Q1-2021Q4

Notes: The impact is in percent and the horizon is quarterly.

We also estimate that the pandemic will likely lower long-term interest rates in the advanced economies by about 100 basis points below their pre-Covid-19 lows (Figure 6). This is because the crisis raises precautionary savings and dampens investment demand. However, the same cannot be said with certainty about emerging market economies where borrowing rates can increase rapidly (as shown by the upper range of our counterfactual exercise).

Figure 6 Counterfactual projections for long-term interest rates, 2020Q1-2021Q4

Notes: The impact is in percentage points and the horizon is quarterly.

Concluding remarks

Our counterfactual analysis points to large and persistent negative effects of the pandemic on the world economy, with no country escaping unscathed. China and the ‘Emerging Asia’ group will fare better in the near term. The Swedish example, however, serves as a warning that no economy is immune from the negative consequences of Covid-19 in an interconnected global economy. Non-Asian emerging markets are particularly vulnerable.

These findings highlight the importance of a comprehensive and a coordinated cross-country policy response to the pandemic. This includes global efforts to ensure swift deployments of medical resources (including vaccines when available), policy interventions that can restore the normal functioning of financial markets, as well as other measures that can support firms and households. Finally, a risk management approach to policymaking would call for activism to buy insurance against the tail events that are depicted by the distribution of likely outcomes. These efforts would likely limit the amount of scarring.

16 novembre 2020

JOSHUA AIZENMAN, HIRO ITO

Post-Covid-19 exit strategies and economic challenges for emerging markets

(synthesis; full article: https://voxeu.org/article/post-covid-19-exit-strategies-and-economic-challenges-emerging-markets)

Abstract: The economic policies of the US in the post-COVID era will have important implications for the global economy. This column outlines two different exit strategies for the US from the COVID-related debt-overhang and analyses their implications for emerging markets and global stability. A strategy of continuing loose fiscal policies and accommodating monetary policies may spur short-term growth but would also increase the risks a deeper crisis in the future. Alternatively, the US could adopt a two-pronged approach of shifting fiscal priorities towards expenses with high social payoffs and then promoting fiscal adjustments aimed at a primary surplus and debt resilience. The post-WWII success story illustrates the feasibility of, and gains from, a two-pronged fiscal strategy.

Keywords: COVID-19 pandemic, post-COVID, COVID-related debt, global economy, recession.

The COVID-19 pandemic has wreaked havoc on the global economy in 2020. To contain the spread of the virus, many countries shut down their economies by halting the movement of people and goods in the spring of 2020, leading about one-third of the world’s population to experience constrained life conditions due to these lockdowns. Consequently, the world economy contracted significantly. The fact that it hit China first induced significant supply chain contagion, intensifying the decline in manufacturing trade and output (Baldwin and Weder di Mauro 2020). To calm financial markets and avoid a possible free fall into a Great Depression, many countries, especially advanced economies (AEs), mobilised policy resources. According to the Manhattan Institute, the US alone will run a budget deficit of $4.2 trillion, or 19% of its GDP – the largest share since the deficit peak during WWII (Figure 1). That would push the US national debt held by the public to $41 trillion, or 128% of GDP, by 2030. This level of the national debt would exceed the level that occurred in 1946 (Figures 2 and 3).

Figure 1 US budget deficit

Source: Manhattan Institute (https://www.manhattan-institute.org/coronavirus-cbo-budget-deficit-projection)

Figure 2 US national debt

Source: Manhattan Institute (https://www.manhattan-institute.org/coronavirus-cbo-budget-deficit-projection)

Figure 3 US national debt projection, September 2020

Source: Congressional Budget Office report, September 2020

With vaccinations for the virus possibly in sight, it is time to ponder an effective economic exit strategy into the post-COVID era. The road the US will take will have overarching repercussions on the global economy, given the size and the pivotal role of the US dollar as the anchor of the global financial system. To gain more insight on the road ahead, in Aizenman and Ito (2020) we compare two divergent US post-COVID economic strategies. The first is just ‘kicking the can down the road’ – that is, the US government could delay implementing needed macroeconomic adjustments and gamble for a resurrection of the economy while continuing to run lax monetary and expansionary fiscal policies. This choice may bring about short-term buoyancy to the US economy but will more likely come with growing exposure to the risk of a future global crisis, possibly worse than the 2008-2011 crisis.

Alternatively, the administration could adopt a two-pronged policy of reallocating the fiscal efforts first, while aiming at reaching a primary surplus over time. Specifically, it could retrench from expenditures oriented towards COVID-related challenges, and move towards expenses with a high social payoff (upgrading K-12 education, investing in medical infrastructures, etc.). With a lag, the restructured fiscal policy, together with a rise in tax collection, may reduce primary budget deficits, aiming to reach surpluses.

Specifically, we examine the interest-rate-growth differentials in the post-WWII period. In the period of 1946-1956, the post-WWII US fiscal policy facilitated global growth where the US, Western European countries, and Japan successfully grew while repressing the interest rate. Their snowball effect, r – g, was often negative during that period. This helped to load-off the public debt overhang associated with the war and reconstruction efforts. In contrast, during 1974-1984, the snowball effect became unsustainably high for many emerging market economies (EMEs), triggering a series of financial crises. Next, we investigate whether and to what extent the cost of serving the public debt affected real output growth. The flow cost of serving debt is estimated by the snowball effect times the public debt as a share of GDP. A higher flow cost of serving the debt may lead investors to question debt sustainability, raising the interest rate, reducing the growth rate, and further increasing the snowball effect. This negative feedback may induce costly market corrections, financial instability, and crisis. The emerging markets’ lost growth decade during the 1980s, and the euro area sovereign debt crisis affecting mostly the Southern euro area states illustrate these dynamics vividly.

Figure 4 shows that the median interest rate growth differential, r – g, is mostly low and in the negative territory during the 1940s and 1950s. Thereby, the US, Japan, and Western European countries benefited from low costs of serving their public debt during the post-WWII recovery decades. The snowball differential continued to be in the negative territory during the 1970s. In the early 1980s, the differential rose up rapidly to the positive territory and mostly remains there until 2000. The 75th percentile (dotted blue) line hovers at high levels in the 1980s and 1990s, indicating that the top 25% of countries in the interest-rate-growth differentials faced very high costs of serving their public debt. These countries include mostly Latin American states, experiencing debt crises and hyperinflation spells during the 1980s. In the mid-2000s, the differential dropped towards negative figures, but rose up again to the positive territory in the 2010s.

Figure 4 The interest-rate-growth differential (percentage points)

The grey solid line in in Figure 4 is the median growth rate of real GDP (in local currency), measured by the right scale. A casual observation is that there is a negative correlation between real output growth and the interest-rate-growth differential. Our empirical work validates that a rise in the cost of external debt would lead (with lags of two to three years) to output growth slowdown, and these effects add up, explaining the lost growth effects of Latin America and other emerging markets during 1980s. A faster rise in the flow cost of serving external debt has a negative impact on output growth, and this effect is dampened if the country experiences real appreciation. Consequently, US post-COVID exit policies reducing the odds of rapid increase in snowball effects may reduce future volatility, stabilizing and increasing the global growth rate.

The history of the US after WWII provides a vivid example of the success of a two-pronged approach in facilitating the exit from a public debt overhang, stabilising the global economy, and solidifying the global role of the dollar. The rapid decline in public debt/GDP from 1946 to 1955, exhibited in Figures 2 and 3, was accommodated by financial repression inducing lower r, mild inflation (~ 4.2%), higher taxes, and robust GDP growth (Aizenman and Marion 2011, Reinhart and Kirkegaard 2012, Reinhart and Sbrancia 2015, Reinhart et al. 2015). Figure 5 vividly shows the sharp drop of WWII US fiscal revenue mobilisation from 50% GDP points in 1944 towards 20% by 1946. Starting in 1947, this large revenue contraction was followed by an upwards trend, increasing the fiscal revenue/GDP to 35% in the 1970s. Remarkably, the US government was running mostly primary surpluses during that period (Figure 6). These policies supported solid economic growth, reducing the public debt/GDP from 106% in 1946 to 23% in 1974.

Figure 5 Total government spending and revenues as a % of GDP

Figure 6 US fiscal surpluses/GDP after WWII

Source: Cochrane (2020)

This post-WWII success story illustrates the feasibility and gains from a two-pronged fiscal strategy. Looking forward, reallocation of fiscal spending from fighting COVID’s medical and economic challenges towards physical, medical, and social infrastructures may provide a welcome boost to future growth. With a lag, following the resumption of robust growth, increasing taxes and reaching a primary surplus may stabilize the US and the global economy. Such a trajectory may solidify the viability and credibility of the US dollar as a global anchor, thereby stabilizing emerging market economies and global growth.

9 novembre 2020

DANIELE SCHILIRÒ

 COVID-19 Crisis and the Public Debt Issue: The Case of Italy.

Abstract: The COVID-19 pandemic has left the global economy with severe health damage, losses of life and a sharp recession. In addition, it has resulted in a rise of public debts, heightening the tension between meeting major policy goals, growth, employment, health system, environment and containing debt vulnerabilities. This paper examines the literature regarding the debt–growth nexus and the issue of debt sustainability. In particular, it highlights the evidence of some empirical literature showing that high public debt hampers growth, and that countries with high public debt are vulnerable to adverse shocks. In addition, the paper focuses on the case of Italy, a country characterized by a high public debt, low growth and other economic weaknesses, with the purpose to claim a strategy and indicate policy measures.

Keywords: COVID-19, crisis, public debt, growth, debt sustainability, Italian economy.

The COVID-19 epidemic has caused unprecedented global economic and financial turmoil, a significant recession in the global economy, an increase in healthcare spending, and continued uncertainty about the duration and depth of the crisis, which is reflected in its economic and financial management. Unfortunately, the pandemic is not over, and recovery is fragile and uneven among countries.

The COVID-19 pandemic marks a new paradigm. It is characterized by government borrowing, money-printing   and   intervention   in   capital markets   in   a   low-inflation   environment.   By focusing on the increase in debt occurring in most countries, the article reviews the literature regarding the debt–growth-nexus and debt sustainability. The empirical literature produced non-conclusive results regarding a debt threshold above which growth is jeopardised by public debt. Some studies stressed the relevance of country-specific characteristics, contingencies and events that play a prominent role and significantly affect the the debt-growth relationship and its determinants. Also, a warning emerges from the analysis of the literature regarding the risks that a high debt entails. In fact, once the crisis is over and the recovery firmly sets in, keeping debt at high levels over the medium term is a source of vulnerability in itself.

In addition, the article explores the issue of debt sustainability and the extraordinary actions taken in the Eurozone by the European Commission and the European Central Bank (ECB) to counter the crisis.  Then, it discusses the case of Italy, since a high public debt and low growth characterize the country.

Regarding the Italian public debt, the COVID-19 epidemic has further precipitated the precarious situations.   “In May 2020, the debt peaked at € 2,530604 billion. Most likely, Italy will have around € 150 billion of new debt by the end of the year.  As a result, per capita debt in 2020 will be € 42,000.  However, the debt situation in the whole Eurozone is not good at all either. According to the European Commission, in the Eurozone, the debt-to-GDP ratio is projected to rise substantially, reaching a new peak of approximately 103% in 2020, before decreasing to below 100% in 2021.  In Italy, in particular, the debt-to-GDP ratio will increase from 134.8% in 2019 to 158.0% at the end of 2020 and should decrease at the end of 2021. This is because the deficit in Italy should reach 10.8% in 2020, and then reduce to 5.6% in 2021, well above the threshold of 3%, thanks to the suspension of the SGP by the European Commission. In addition, Italy will receive an endowment from SURE of € 27.4 billion.  Whereas, starting from 2021, Italy should receive from Next generation EU € 81.4 billion in non-repayable funds and € 127.6 billion in loans at almost zero interest and repayable in thirty years: € 209 billion in all.” (p.1855).

The article underlines that the main road to manage a high public debt is to boost growth. Therefore, it highlights several critical aspects of the Italian economy such as unproductive public spending, high tax evasion, a slow and complex bureaucracy, an aging population coupled with low birth rates, insufficient digitization, lack of skills in human capital, the economic gap between the Northern and Southern regions.

Although the ECB and the EU budget provide a policy response to the pandemic crisis avoiding financial instability and limiting any risk of sovereign default, also supporting the economy, the real crucial issue regarding growth and high public debt is that the Italian government should have a strategy to address the recovery and relaunch the economy in the medium to long term. In addition to the necessary strategy, the country must have the capability to manage efficiently all the factors that enable to make that strategy.

Among the possible actions to relaunch growth of Italian economy: focus on investments of capital goods with a high technological content, green investments, and investments in digitization;  improve the efficiency of the public administration and simplify bureaucracy; reforme of the judicial system to speed up the resolution of disputes between companies and between public administration and businesses; strengthen the health system with investments in new technologies, adequate infrastructures and human capital; in the face of the problems related to structural change and the crisis of some sectors, seek solutions that tend to facilitate the reorganization of industrial sectors and, at the same time, by partly bearing the social costs of these processes; working on the debt component, because it is necessary to have the room for maneuver in the future that other countries have had.

Public spending can be positive for growth, especially when it is well spent, in targeted projects that improve the productivity of the country system and develop the skills among the new generations, and when it is complementary to private spending, particularly investments in R&D, innovation, and human resources. On top of that, Italy needs a challenging and bold plan that sees companies as protagonists with investments in strategic supply chain projects and that provide training of new skills.

Therefore, public debt sustainability, currently mainly ensured by the ECB through the PEPP, will largely depends on the ability to implement long-needed reforms and stimulate growth through a clear strategy. The opportunity of the EU Next Generation funds is unique.  Getting out of the crisis depends on Italy’s ability to develop credible projects and reforms aimed at growth and at consolidating its debt to prevent the country from likely decline.

3 novembre 2020

 JAY HYUN, DAISOON KIM, SEUNG-RYONG SHIN

Global connectedness and market power make firms more resilient to domestic COVID-19 shocks

 (synthesis; full article: https://voxeu.org/article/income-inequality-and-welfare-state-during-covid-19)

 Abstract:  During periods of turmoil such as the Covid-19 pandemic, firms with more resilient business models tend to survive and expand more than others. This column presents evidence that firms with higher global connectedness and market power are more resilient to domestic pandemic shocks. While global production and export networks expose firms to foreign pandemic shocks, they potentially make firms less susceptible to domestic pandemic shocks through diversification of suppliers and markets. In addition, higher market power could provide buffers by allowing bigger margins of adjustment.

 Keywords: COVID-19, domestic pandemic, border closures, lockdown policies, social distancing, business models, firm’s market value.

The recent COVID-19 pandemic has influenced our society in various ways. In particular, changes in business environments induced by border closures, lockdown policies, social distancing, and preference changes have generated a spike in uncertainty, significant disruptions in business, and a reallocation across firms (e.g. Baker et al. 2020, Barrero et al. 2020, Ding et al. 2020). During periods of such turmoil, firms with more resilient business models tend to survive and expand more than others, which leads to an important question of what characteristics of firms are vital in managing crises.

Our recent paper (Hyun et al. 2020) attempts to answer this question with particular emphasis on two firm characteristics — global connectedness and market power — which play central roles in the economics and finance literature, and have attracted a great deal of attention in the last decade.

Global integration: Necessarily bad during the pandemic?

The global economy has so far evolved toward integration through global value chains, trade, and migration, and there is now a consensus in the media and policy circles that global integration has exacerbated the negative impact of the pandemic crisis, both through the direct spread of the disease and through the disruption in foreign supply and demand.1 From a theoretical point of view, however, more globally connected firms via supply chains and exports could enjoy a more diversified portfolio of suppliers and markets, which would potentially allow them to buffer negative domestic shocks by making more flexible decisions in production and market management. Another firm characteristic, market power (which we measure through markup), could also make firms more resilient to negative shocks by providing bigger margins of adjustment and flexibility, as a large degree of markup implies that the firms’ products are not easily substituted for others, allowing the firms to adjust prices without a significant decline in demand.

Descriptive evidence: Firms with higher global connectedness and market power performed better in stock markets

Using a weekly global stock market dataset of covering 8,000 listed firms in 71 countries for the first five months of 2020, we investigate how pre-pandemic firm characteristics, including global connectedness and market power, affect firms’ stock market performances in response to the COVID-19 pandemic shock. We primarily focus on a firm’s market value, which equates to the present value of the expected future stream of profits (or dividends).2 Thus, changes in stock market value reflect investors’ information about firms’ current and future performances.

Figure 1 shows the evolution of the average market value of the US firms as a function of their degree of global connectedness (measured by foreign supplier share and export share) and market power (measured by markups).3 Specifically, we group firms separately across those in the top and bottom quantiles of markup, foreign supplier share, and export share distributions. Firms with higher markups and who are more globally integrated through supply chains and exports, differentially performed better compared to those with lower markups and who are less globally integrated. This descriptive exercise suggests that global production and export networks as well as markups potentially allow firms to be more resilient during crisis periods.

Figure 1 Changes in market values of different groups of firms

Notes. The figures plot the average market values of each group of firms over time, which are rebased to one for the first week. The manufacturing and service firms are classified by the Standard Industry Classification (SIC) codes 2000 – 3999 and 7000 – 8999, respectively. In each column, the red square and blue circle lines are the average market values of top and bottom quantile firms of each measurement of markups, foreign supply, and export networks, respectively.
Source. Hyun et al. (2020)

Regression analysis: Global connectedness and market power make firms more resilient to the domestic pandemic shock

We confirm our result using a formal regression analysis. Specifically, we regress a firm’s weekly market value growth on various explanatory variables, including the domestic pandemic shock measured by weekly growth rate in domestic total confirmed cases and its interaction with various pre-pandemic firm characteristics, including measures of global connectedness through global supply chains and exports, markups as a measure of market power, employment, and various financial conditions. We also control for measures of foreign pandemic shocks, any time-varying and time-invariant industry and/or country differences that might influence stock market reactions to the pandemic, as well as time-invariant unobserved firm characteristics.

Figure 2 visualises our main findings. We plot the estimated coefficients and their 95% confidence intervals of our main coefficients of interest by moving the terminal period from the tenth week (5 March) of 2020 to the 22nd week (28 May).4 First, consistent with widely accepted views, global supply chain and exports negatively affect firms’ market value by transmitting foreign pandemic shocks (the first row in Figure 2). However, we find a significant heterogeneous response to the domestic pandemic shock: firms with larger foreign supplier share, export share, and markup experience smaller decrease of weekly market value growth in reacting to the domestic pandemic shock. This result is consistent with the view that global connectedness and market power make firms more resilient to domestic shocks by diversifying the markets and suppliers and by providing more flexibility and margins of adjustment in response to negative shocks.5

Figure 2 Impacts of domestic and foreign COVID-19 shocks on firms’ market value

Notes. The figures plot the estimated coefficients and their 95% confidence interval with clustered standard errors at the firm level. The dependent variable is weekly growth rate of market value (in percent) of each firm. In the figure, ForeignCovid (Supplier) and ForeignCovid (Export) measure the foreign pandemic shocks exposed through foreign suppliers and exports, respectively. Covid is the domestic pandemic shock, ForeignSupplierShare and ExportShare measure the share of foreign suppliers among total number of suppliers and the share of revenue generated from foreign countries among total revenue, respectively, Markup is constructed from the firm’s cost minimisation.
Source. Hyun et al. (2020)

Concluding remarks

Using stock market data, we analyse which characteristics of firms allow them to be more resilient during the pandemic, highlighting the role of global networks and markups. This gives guidance to policymakers, investors, businesses, and workers to make optimal decisions facing large short-run and long-run changes and uncertainties during periods of crises.

A firm’s market value is the present value of the expected future stream of profits. Thus, our findings illuminate stock market investors’ information about the post-pandemic world.6 As a result of the pandemic, the cross-sectional distribution would be tilted toward high markup and more globally connected firms.

26 ottobre 2020

BARTHÉLÉMY BONADIO, ZHEN HUO, ANDREI LEVCHENKO, NITYA PANDALAI-NAYAR

The role of global supply chains in the COVID-19 pandemic and beyond

(synthesis; full article: https://voxeu.org/article/role-global-supply-chains-covid-19-pandemic-and-beyond)

Abstract: Lockdown disruptions to manufacturing and shipping transmit shocks across countries through global supply chains. This column uses a simulation analysis to quantify these impacts and finds that the transmission of foreign lockdowns accounted for one-third of the total Covid-19-related GDP contractions. However, renationalisation of global supply chains is unlikely to help insulate economies from future pandemic-driven lockdowns. The reason is that eliminating reliance on foreign inputs would increase the reliance on domestic inputs. Since a pandemic-related lockdown would also affect domestic input suppliers, there is generally no resilience benefit from renationalising international supply chains.

Keywords: COVID-19 pandemic, foreign lockdown, world economy, global supply chains

Global supply chains are a central feature of the world economy. As most countries enter Covid-19 related lockdowns, there are concerns about both the present and the future of global supply chains. In the present, global supply chains are widely believed to transmit the crisis across countries (Baldwin and Freeman 2020). The future is forecasted to bring about at least some renationalisation of the supply chains (Javorcik 2020). This retrenchment of supply chains could be given an impetus by protectionist and nationalist policies that may come in the wake of the pandemic (Baldwin and Evenett 2020).

Our recent paper (Bonadio et al. 2020) performs a quantitative assessment of the role of global supply chains in the pandemic. We address two questions.

  • First, how much did foreign lockdowns contribute to coronavirus-related GDP contractions?
  • Second, would renationalising global supply chains insulate countries from future epidemic-related contractions in labour supply?

The quantification model

We use a quantitative model of world production and trade covering 64 countries on six continents and 33 sectors spanning all economic activities. We parameterise the model using the OECD Inter-Country Input-Output (ICIO) Tables that provide matrices of domestic and international intermediate input and final use trade. We start by simulating a global lockdown as a contraction in labour supply. To discipline the size of the labour contraction, we use the Dingel and Neiman (2020) measure of the fraction of the work of different occupations that can be done at home. Variation across sectors in their usage of different occupations and of countries in their sectoral employment composition then results in heterogeneous incidence of the shock across countries. Countries also vary in the stringency of lockdown measures. To capture this, we interact the work from home intensity by occupation with an index capturing the country-level stringency from the Oxford Blavatnik School of Government Coronavirus Government Response Tracker (Hale et al. 2020).

Results

The blue-white combination bars in Figure 1 display the GDP drops across all countries predicted by our baseline model following the labour supply shock. The four panels group countries into geographical regions. The GDP reductions are dramatic, at -31.5% on average. There is a significant amount of dispersion, with GDP reductions ranging from -21% in Taiwan and Sweden (which famously imposed one of the most lenient lockdown policies) to -40% in Vietnam.

Figure 1 GDP responses to the pandemic-related labour supply shock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Our focus is on the role of the global supply chains in particular. Using the tools from Huo et al. (2020), we compute the share of each country’s GDP contraction that is due to foreign, rather than domestic, shocks. The white parts of the bars denote the contribution of foreign shocks. Foreign shocks transmitted through the global supply chains are responsible for a sizeable minority of the overall GDP contraction. The mean contribution of foreign shocks to the fall in GDP is about one third of the total. That is, an average country would experience an 11% GDP contraction purely due to the foreign lockdowns, even if it did not impose any lockdown on its own economy.

The economies with the largest foreign shock contributions (in proportional terms) are among those most tightly integrated into the global supply chains: Brunei, Kazakhstan, Saudi Arabia, Chile, and Colombia. Among these five countries, foreign shocks account for 57% of the total contraction on average.

Would supply chain repatriation have made a difference?

We next tackle the more substantive question of whether participation in global supply chains exacerbated or alleviated the pandemic-induced contraction in labour supply. It is not clear whether supply chain renationalisation will actually make GDP more resilient to future pandemic-type shocks. Figuring this out requires comparing the pandemic-induced GDP change in the baseline model to the pandemic-induced GDP change in an alternative world without international trade, where supply chains have adjusted to use only domestic inputs. Naturally, renationalisation of global supply chains would change the relative size of domestic sectors, as input users shift from foreign to domestic intermediates.

The answer is that by and large, severing global supply chains will not make countries more resilient to pandemic-style labour supply shocks. The grey bars in Figure 1 plot counterfactual declines in GDP for the same shock in a world where supply chains are domestic. It turns out that on average in our 64 countries, the downturn would actually be slightly worse with renationalised supply chains (-32.3% on average) than under current levels of trade. The intuition for this finding is simple: eliminating reliance on foreign inputs increases the reliance on domestic inputs. Since any national pandemic-related lockdown also affects domestic sectors, there is generally no resilience benefit from renationalising the international supply chains.

There is a modest distribution of differences around the average. In some countries, GDP would drop by four percentage points more if supply chains were renationalised, whereas in others GDP would fall by about four to six percentage points less. The cross-country variation is well-explained by differences in lockdown severity across countries. Some countries – most prominently Japan, Taiwan, Sweden, and Greece – imposed less stringent lockdowns in response to the pandemic shock. The domestic pandemic-induced shock is therefore smaller in these countries than the shock in their trading partners with more severe lockdowns. Separating from the global supply chains would make these countries more resilient to lockdowns by eliminating the transmission of the relatively larger shock from other countries. By contrast, a country with the most severe lockdown will reduce its own domestic labour supply by more than its average trading partner. In that case, the supply of the domestic intermediate inputs falls by more than the supply of foreign ones, and thus the GDP contraction is larger when supply chains are renationalised.

Another potential channel that may affect the benefits of supply chain renationalisation is a shift of the relative size of sectors within a country. All else equal, a country would be better off if renationalisation leads to expansion of sectors that are less exposed to negative labour supply shocks. A sector is less exposed to the pandemic-related lockdown if much of its labour input can be provided from home. Though plausible, we found that this channel is quantitatively less important compared to the aforementioned effect of shifting from foreign to domestic inputs.

Concluding remarks

All in all, our results show that global supply chains clearly transmit the economic effects of the lockdowns across borders. However, that does not mean that the presence of global supply chains uniformly exacerbates the downturn. Whether renationalising supply chains insulates a country from the pandemic depends on whether it plans to impose a more or less severe lockdown than its trading partners.

19 ottobre 2020

JAY HYUN, DAISOON KIM, SEUNG-RYONG SHIN

Global connectedness and market power make firms more resilient to domestic COVID-19 shocks

 (synthesis; full article: https://voxeu.org/article/global-connectedness-market-power-and-firms-resilience-domestic-covid-19-shocks)

 Abstract: During periods of turmoil such as the Covid-19 pandemic, firms with more resilient business models tend to survive and expand more than others.This column presents evidence that firms with higher global connectedness and market power are more resilient to domestic pandemic shocks. While global production and export networks expose firms to foreign pandemic shocks, they potentially make firms less susceptible to domestic pandemic shocks through diversification of suppliers and markets. In addition, higher market power could provide buffers by allowing bigger margins of adjustment.

Keywords: COVID-19 pandemic, global lockdown, business models, firms, markets.

The recent COVID-19 pandemic has influenced our society in various ways. In particular, changes in business environments induced by border closures, lockdown policies, social distancing, and preference changes have generated a spike in uncertainty, significant disruptions in business, and a reallocation across firms (e.g. Baker et al. 2020, Barrero et al. 2020, Ding et al. 2020). During periods of such turmoil, firms with more resilient business models tend to survive and expand more than others, which leads to an important question of what characteristics of firms are vital in managing crises.

Our recent paper (Hyun et al. 2020) attempts to answer this question with particular emphasis on two firm characteristics — global connectedness and market power — which play central roles in the economics and finance literature, and have attracted a great deal of attention in the last decade.

Global integration: Necessarily bad during the pandemic?

The global economy has so far evolved toward integration through global value chains, trade, and migration, and there is now a consensus in the media and policy circles that global integration has exacerbated the negative impact of the pandemic crisis, both through the direct spread of the disease and through the disruption in foreign supply and demand. From a theoretical point of view, however, more globally connected firms via supply chains and exports could enjoy a more diversified portfolio of suppliers and markets, which would potentially allow them to buffer negative domestic shocks by making more flexible decisions in production and market management. Another firm characteristic, market power (which we measure through markup), could also make firms more resilient to negative shocks by providing bigger margins of adjustment and flexibility, as a large degree of markup implies that the firms’ products are not easily substituted for others, allowing the firms to adjust prices without a significant decline in demand.

Descriptive evidence: Firms with higher global connectedness and market power performed better in stock markets

Using a weekly global stock market dataset of covering 8,000 listed firms in 71 countries for the first five months of 2020, we investigate how pre-pandemic firm characteristics, including global connectedness and market power, affect firms’ stock market performances in response to the COVID-19 pandemic shock. We primarily focus on a firm’s market value, which equates to the present value of the expected future stream of profits (or dividends). Thus, changes in stock market value reflect investors’ information about firms’ current and future performances.

Figure 1 shows the evolution of the average market value of the US firms as a function of their degree of global connectedness (measured by foreign supplier share and export share) and market power (measured by markups). Specifically, we group firms separately across those in the top and bottom quantiles of markup, foreign supplier share, and export share distributions. Firms with higher markups and who are more globally integrated through supply chains and exports, differentially performed better compared to those with lower markups and who are less globally integrated. This descriptive exercise suggests that global production and export networks as well as markups potentially allow firms to be more resilient during crisis periods.

Figure 1 Changes in market values of different groups of firms

Notes. The figures plot the average market values of each group of firms over time, which are rebased to one for the first week. The manufacturing and service firms are classified by the Standard Industry Classification (SIC) codes 2000 – 3999 and 7000 – 8999, respectively. In each column, the red square and blue circle lines are the average market values of top and bottom quantile firms of each measurement of markups, foreign supply, and export networks, respectively.
Source. Hyun et al. (2020)

Regression analysis: Global connectedness and market power make firms more resilient to the domestic pandemic shock

We confirm our result using a formal regression analysis. Specifically, we regress a firm’s weekly market value growth on various explanatory variables, including the domestic pandemic shock measured by weekly growth rate in domestic total confirmed cases and its interaction with various pre-pandemic firm characteristics, including measures of global connectedness through global supply chains and exports, markups as a measure of market power, employment, and various financial conditions. We also control for measures of foreign pandemic shocks, any time-varying and time-invariant industry and/or country differences that might influence stock market reactions to the pandemic, as well as time-invariant unobserved firm characteristics.

Figure 2 visualises our main findings. We plot the estimated coefficients and their 95% confidence intervals of our main coefficients of interest by moving the terminal period from the tenth week (5 March) of 2020 to the 22nd week (28 May). First, consistent with widely accepted views, global supply chain and exports negatively affect firms’ market value by transmitting foreign pandemic shocks (the first row in Figure 2). However, we find a significant heterogeneous response to the domestic pandemic shock: firms with larger foreign supplier share, export share, and markup experience smaller decrease of weekly market value growth in reacting to the domestic pandemic shock. This result is consistent with the view that global connectedness and market power make firms more resilient to domestic shocks by diversifying the markets and suppliers and by providing more flexibility and margins of adjustment in response to negative shocks.

Figure 2 Impacts of domestic and foreign COVID-19 shocks on firms’ market value

 

Notes. The figures plot the estimated coefficients and their 95% confidence interval with clustered standard errors at the firm level. The dependent variable is weekly growth rate of market value (in percent) of each firm. In the figure, ForeignCovid (Supplier) and ForeignCovid (Export) measure the foreign pandemic shocks exposed through foreign suppliers and exports, respectively. Covid is the domestic pandemic shock, ForeignSupplierShare and ExportShare measure the share of foreign suppliers among total number of suppliers and the share of revenue generated from foreign countries among total revenue, respectively, Markup is constructed from the firm’s cost minimisation.
Source. Hyun et al. (2020)

Concluding remarks

Using stock market data, we analyse which characteristics of firms allow them to be more resilient during the pandemic, highlighting the role of global networks and markups. This gives guidance to policymakers, investors, businesses, and workers to make optimal decisions facing large short-run and long-run changes and uncertainties during periods of crises.

A firm’s market value is the present value of the expected future stream of profits. Thus, our findings illuminate stock market investors’ information about the post-pandemic world. As a result of the pandemic, the cross-sectional distribution would be tilted toward high markup and more globally connected firms.

12 ottobre 2020

SIMON BURGESS, HANS HENRIK SIEVERTSEN

Schools, skills, and learning: The impact of COVID-19 on education

(synthesis; full article: https://voxeu.org/article/impact-covid-19-education)

 Abstract: The global lockdown of education institutions is going to cause major (and likely unequal) interruption in students’ learning; disruptions in internal assessments; and the cancellation of public assessments for qualifications or their replacement by an inferior alternative. This column discusses what can be done to mitigate these negative impacts.

Keywords: COVID-19 pandemic, global lockdown, impacts on education, school, higher education.

The COVID-19 pandemic is first and foremost a health crisis. Many countries have (rightly) decided to close schools, colleges and universities. The crisis crystallises the dilemma policymakers are facing between closing schools (reducing contact and saving lives) and keeping them open (allowing workers to work and maintaining the economy). The severe short-term disruption is felt by many families around the world: home schooling is not only a massive shock to parents’ productivity, but also to children’s social life and learning. Teaching is moving online, on an untested and unprecedented scale. Student assessments are also moving online, with a lot of trial and error and uncertainty for everyone. Many assessments have simply been cancelled. Importantly, these interruptions will not just be a short-term issue, but can also have long-term consequences for the affected cohorts and are likely to increase inequality.

Impacts on education: Schools

Going to school is the best public policy tool available to raise skills. While school time can be fun and can raise social skills and social awareness, from an economic point of view the primary point of being in school is that it increases a child’s ability. Even a relatively short time in school does this; even a relatively short period of missed school will have consequences for skill growth. But can we estimate how much the COVID-19 interruption will affect learning? Not very precisely, as we are in a new world; but we can use other studies to get an order of magnitude.

Two pieces of evidence are useful. Carlsson et al. (2015) consider a situation in which young men in Sweden have differing number of days to prepare for important tests. These differences are conditionally random allowing the authors to estimate a causal effect of schooling on skills. The authors show that even just ten days of extra schooling significantly raises scores on tests of the use of knowledge (‘crystallized intelligence’) by 1% of a standard deviation. As an extremely rough measure of the impact of the current school closures, if we were to simply extrapolate those numbers, twelve weeks less schooling (i.e. 60 school days) implies a loss of 6% of a standard deviation, which is non-trivial. They do not find a significant impact on problem-solving skills (an example of ‘fluid intelligence’).

A different way into this question comes from Lavy (2015), who estimates the impact on learning of differences in instructional time across countries. Perhaps surprisingly, there are very substantial differences between countries in hours of teaching. For example, Lavy shows that total weekly hours of instruction in mathematics, language and science is 55% higher in Denmark than in Austria. These differences matter, causing significant differences in test score outcomes: one more hour per week over the school year in the main subjects increases test scores by around 6% of a standard deviation. In our case, the loss of perhaps 3-4 hours per week teaching in maths for 12 weeks may be similar in magnitude to the loss of an hour per week for 30 weeks. So, rather bizarrely and surely coincidentally, we end up with an estimated loss of around 6% of a standard deviation again. Leaving the close similarity aside, these studies possibly suggest a likely effect no greater than 10% of a standard deviation but definitely above zero.

Impacts on education: Families

Perhaps to the disappointment of some, children have not generally been sent home to play. The idea is that they continue their education at home, in the hope of not missing out too much.

Families are central to education and are widely agreed to provide major inputs into a child’s learning, as described by Bjorklund and Salvanes (2011). The current global-scale expansion in home schooling might at first thought be seen quite positively, as likely to be effective. But typically, this role is seen as a complement to the input from school. Parents supplement a child’s maths learning by practising counting or highlighting simple maths problems in everyday life; or they illuminate history lessons with trips to important monuments or museums. Being the prime driver of learning, even in conjunction with online materials, is a different question; and while many parents round the world do successfully school their children at home, this seems unlikely to generalise over the whole population.

So while global home schooling will surely produce some inspirational moments, some angry moments, some fun moments and some frustrated moments, it seems very unlikely that it will on average replace the learning lost from school. But the bigger point is this: there will likely be substantial disparities between families in the extent to which they can help their children learn. Key differences include (Oreopoulos et al. 2006) the amount of time available to devote to teaching, the non-cognitive skills of the parents, resources (for example, not everyone will have the kit to access the best online material), and also the amount of knowledge – it’s hard to help your child learn something that you may not understand yourself. Consequently, this episode will lead to an increase in the inequality of human capital growth for the affected cohorts.

Assessments

The closure of schools, colleges and universities not only interrupts the teaching for students around the world; the closure also coincides with a key assessment period and many exams have been postponed or cancelled.

Internal assessments are perhaps thought to be less important and many have been simply cancelled. But their point is to give information about the child’s progress for families and teachers. The loss of this information delays the recognition of both high potential and learning difficulties and can have harmful long-term consequences for the child. Andersen and Nielsen (2019) look at the consequence of a major IT crash in the testing system in Denmark. As a result of this, some children could not take the test.  The authors find that participating in the test increased the score in a reading test two years later by 9% of a standard deviation , with similar effects in mathematics. These effects are largest for children from disadvantaged backgrounds.

Importantly, the lockdown of institutions not only affects internal assessments. In the UK, for example, all exams for the main public qualifications – GCSEs and A levels – have been cancelled for the entire cohort. Depending on the duration of the lockdown, we will likely observe similar actions around the world. One potential alternative for the cancelled assessments is to use ‘predicted grades’, but Murphy and Wyness (2020) show that these are often inaccurate, and that among high achieving students, the predicted grades for those from disadvantaged backgrounds are lower than those from more advantaged backgrounds. Another solution is to replace blind exams with teacher assessments. Evidence from various settings show systematic deviations between unblind and blind examinations, where the direction of the bias typically depends on whether the child belongs to a group that usually performs well (Burgess and Greaves 2013, Rangvid 2015). For example, if girls usually perform better in a subject, an unblind evaluation of a boy’s performance is likely to be downward biased. Because such assessments are used as a key qualification to enter higher education, the move to unblind subjective assessments can have potential long-term consequences for the equality of opportunity.

It is also possible that some students’ careers might benefit from the interruptions. For example, in Norway it has been decided that all 10th grade students will be awarded a high-school degree. And Maurin and McNally (2008) show that the 1968 abandoning of the normal examination procedures in France (following the student riots) led to positive long-term labour market consequences for the affected cohort.

In higher education many universities and colleges are replacing traditional exams with online assessment tools. This is a new area for both teachers and students, and assessments will likely have larger measurement error than usual. Research shows that employers use educational credentials such as degree classifications and grade point averages to sort applicants (Piopiunik et al. 2020). The increase in the noise of the applicants’ signals will therefore potentially reduce the matching efficiency for new graduates on the labour market, who might experience slower earnings growth and higher job separation rates. This is costly both to the individual and also to society as a whole (Fredriksson et al. 2018).

Graduates

The careers of this year’s university graduates may be severely affected by the COVID-19 pandemic. They have experienced major teaching interruptions in the final part of their studies, they are experiencing major interruptions in their assessments, and finally they are likely to graduate at the beginning of a major global recession. Evidence suggests that poor market conditions at labour market entry cause workers to accept lower paid jobs, and that this has permanent effects for the careers of some. Oreopoulos et al. (2012) show that graduates from programmes with high predicted earnings can compensate for their poor starting point through both within- and across-firm earnings gains, but graduates from other programmes have been found to experience permanent earnings losses from graduating in a recession.

Solutions?

The global lockdown of education institutions is going to cause major (and likely unequal) interruption in students’ learning; disruptions in internal assessments; and the cancellation of public assessments for qualifications or their replacement by an inferior alternative.

What can be done to mitigate these negative impacts? Schools need resources to rebuild the loss in learning, once they open again. How these resources are used, and how to target the children who were especially hard hit, is an open question. Given the evidence of the importance of assessments for learning, schools should also consider postponing rather than skipping internal assessments. For new graduates, policies should support their entry to the labour market to avoid longer unemployment periods.

5 ottobre 2020

ORIOL ASPACHS, RUBEN DURANTE, JOSÉ GARCÍA-MONTALVO, ALBERTO GRAZIANO, JOSEP MESTRES, MARTA REYNAL-QUEROL 

Measuring income inequality and the impact of the welfare state during COVID-19: Evidence from bank data

(synthesis; full article: https://voxeu.org/article/income-inequality-and-welfare-state-during-covid-19)

 Abstract: The economic crisis from the COVID-19 pandemic may disproportionately affect the most vulnerable segments of the population, creating serious challenges for social cohesion and political stability. This column constructs a high-frequency measure of income inequality using anonymised data from bank records on the wages and public transfers of over three million account holders in Spain. Wage inequality increased by almost 30% during the COVID-19 crisis, mainly due to job losses and wage cuts for low-income workers. However, public transfers were very effective at offsetting most, though not all, of this increase.

Keywords: COVID-19 pandemic, economic crisis, bank data, European economy, Wage Structure Survey

COVID-19 has taken a heavy toll on the European economy, particularly in southern countries like Italy and Spain, where GDP is expected to shrink by over 10% in 2020 (IMF 2020a, Bank of Spain 2020). A crucial concern is that the economic impact of the pandemic may disproportionately hit the most vulnerable segments of the population, leading to a surge in economic inequality with potential risks for social cohesion and political stability (Inglehart and Norris 2016). To mitigate the economic consequences of the pandemic, governments are investing vast resources to support families’ incomes and provide credit to firms (IMF 2020b, ILO 2020). Yet, how appropriate and effective these policies are remains unclear, mainly due to a lack of reliable indicators allowing the tracking of economic inequality at a high frequency. Indeed, most official statistics on income inequality are available only at a yearly frequency and often with long delays, limiting the ability of policymakers to rapidly adjust their responses.1

In a recent working paper (Aspachs et al. 2020), we propose a new methodology to track the evolution of income inequality at a high frequency using anonymised data from bank records including information on wages and subsidies paid to account holders. Our analysis focuses on Spain and uses data from CaixaBank – Spain’s second-largest bank by total assets and first by direct payroll deposits – which cover over three million retail depositors. Our sample includes all active account holders receiving payroll payments from a private or public employer and/or any government subsidy.2,3,4

The sample is highly representative of the Spanish working population. Figure 1 depicts the distribution of wages in our sample and the distribution of salaries (net of taxes and social security contributions) from the 2014 wave of the Wage Structure Survey (ESS), conducted by the Spanish National Institute of Statistics (INE).5 The similarity between the two distributions is remarkable.

Figure 1 Distribution of wages from bank records and of net salaries from the 2014 Wage Structure Survey

We first examine how wages changed for individuals with different pre-pandemic wage levels following the spread of the virus and the associated lockdown measures (enacted in mid-March). Figure 2 reports the distribution of individuals by the change in wages they experienced between February 2020 and April 2020, that is, between the last full pre-COVID month and the first full post-COVID month. Crucially, to separate the effect of the pandemic from normal wage fluctuations due to seasonality, we net out the difference recorded for people in the same wage level between April and February 2019.6 Hence, moving from left to right on the horizontal axis, we go from people who lost the most to people who gained the most between February and April 2020, relative to 2019. The top panels consider only the wages paid by employers, while the bottom panels consider both wages and government subsidies. The left panels report the distribution for the entire sample, while the right panels depicts the distribution separately for four different wage groups (as of February 2020): (i) people earning between €900 and €1,000 (25th percentile), (ii) between €1,200 and €1,300 (median), (iii) between €1,700 and €1,800 (75th percentile), and (iv) between €2,900 and €3,000 (95th percentile).

Figure 2 Distribution of income changes between February and April 2020 (relative to 2019) by income group

Several clear patterns emerge. First, a much higher share of individuals in the sample lost all of their wages between February and April 2020 than during the same period of 2019. This pattern is more pronounced for people in the lower wage brackets (+20%) than for those in the higher brackets (+8% and +3%). Second, a higher share of people experienced partial wage losses, either large (i.e. -50% to -75%) or small (-1% to -5%), with the latter situation being more frequent among people in the higher wage groups (+8% and +9%). Third, a much lower share of people, particularly in the lower wage groups, experienced wage increases between February and April of 2020 relative to the same period of 2019. Hence, the crisis was detrimental for the vast majority of wage earners but affected lower-income workers disproportionately.

To what extent did government intervention mitigate these dynamics? Looking at the bottom panels, it is clear that public transfers considerably reduced the share of people with no income. This is the case for all groups but especially for those with lower wages. Government intervention also alleviated the situation of those having lost a large part of their income, but not of those having experienced small losses, whose share remains remarkably stable between the pre-transfer and the post-transfer distribution. Finally, public transfers reduced the share of people having foregone wage increases relative to 2019, and, for some groups, even increased the share of those who experienced a moderate or large net increase in wage relative to the previous year.

We then analyse how income inequality evolved over the course of the crisis. To this end, in Figure 3, we plot the Gini index for each month between February and May 2020 (right panel) and for the same months of 2019 (left), for both the pre-transfer (blue line) and the post-transfer distribution (red). While the Gini index in February 2020 was virtually the same as in February 2019 (both pre-transfer and post-transfer), income inequality increased sharply in March, and even more so in April and May when the Gini index was about ten points higher than in February. This represents an unprecedented increase of about 25% in just two months, roughly corresponding to the difference between Germany and the US as of 2016 (World Bank 2020).

Government intervention was quite effective at containing the spike in inequality. Indeed, while the post-transfer Gini index is usually lower than pre-transfer Gini index by about five points, this difference reached 13 points in both April and May 2020, offsetting most, though not all, of the increase in pre-transfer inequality. Government action was somewhat less effective in March, when the post-transfer Gini index reached its peak, about three points higher than in the same month of 2019. This was arguably due to the delay in the disbursement of subsidy and unemployment benefit pay-outs in the early stage of the crisis, which temporarily left some of the most vulnerable workers without a safety net.7

Figure 3 Evolution of the Gini index for pre-transfer and post-transfer incomes (February-May 2019 and 2020)

Finally, we examine how the effect of the crisis on income inequality varied across different areas of the country. To this end, in Figure 4 we report the change in the Gini index between February and April 2020 separately for the sixteen regions of Spain. The results suggest that, though income inequality increased considerably in all regions, the rise was especially strong in regions – such as Balearic and Canary Islands – that rely heavily on tourism, one of the sectors most affected by the pandemic and the lockdown.

Figure 4 Change in the Gini index between February and May 2020 by region

Concluding remarks

Our results document that the COVID-19 pandemic, and the measures adopted to face it, led to a massive increase in income inequality in Spain, primarily driven by job losses and wage cuts for low-income workers. They also indicate that, despite an initial delay, government transfers were effective at containing this increase, reducing inequality to levels not too distant from the pre-pandemic ones. Though reassuring of the ability of the welfare state to cope with such extreme situations, this finding generates some concerns for how things may evolve should the intensity of government intervention decline due to budgetary reasons before the health emergency has ceased. From a methodological perspective, our analysis provides the first example of how banking data can be used to track income inequality at a high frequency. More generally, and in line with other recent experiences (Bick and Blandin 2020, Chetty et al. 2020, Cicala 2020), it illustrates how big data from private sources can be harnessed to better understand the fast changes the economy is undergoing and to inform effective policymaking.

29 settembre 2020

 JUAN C. PALOMINO, JUAN GABRIEL RODRÍGUEZ, RAQUEL SEBASTIAN

Inequality and poverty effects of the lockdown in Europe

(synthesis; full article: https://voxeu.org/article/inequality-and-poverty-effects-lockdown-europe)

Abstract:  Enforced social distancing and lockdown measures to contain COVID-19 restrict economic activity, especially among workers in non-essential jobs who cannot ‘telework’. These have implications for inequality and poverty. This column analyses the capacity of individuals in 29 European countries to work under lockdown and the potential impact of a two-month lockdown on wages and inequality levels. There will be substantial and uneven wage losses across the board and poverty will rise. Inequality within countries will worsen, as it will between countries although to a lesser extent.

Keywords: COVID-19, lockdown, inequality, poverty, telework

The economic impact of COVID-19 is dramatic. The global economy is expected to shrink by 3% this year. Asia will not have economic growth for the first time in 60 years, the US and European economies are projected to contract between 6% and 8% (International Monetary Fund 2020), and global job losses are estimated to be over 200 million (International Labour Organization 2020).

The economic effects of the pandemic, however, will not be equally distributed (Dorn et al. 2020, McKibbin and Fernando 2020) and are likely to have distributional implications (Furceri et al. 2020, Lustig and Mariscal 2020).

Our findings strongly support this statement (Palomino et al. 2020). We estimate that the burden of the pandemic will be disproportionately borne by low-wage earners which, in the absence of compensating policies, will significantly increase poverty and inequality across Europe.

The lockdown and partial closure of economic activities were crucial to stop the pandemic and save lives, but their economic effects are likely to diminish economic cohesion between and within European countries.

Teleworking and lockdown ability to work in Europe

 Even without considering the subsequent effects that may occur on the demand side (del Rio-Chanona et al. 2020), the lockdown and social distancing imposed by governments to limit the spread of COVID-19 have direct asymmetric effects on the labour market: in principle, only the jobs that can be done from home (‘teleworkable’) are unimpeded by the lockdown. Some occupations like health services and food sales are considered essential, so workers are not affected by their capacity to work from home. Meanwhile, certain economic activities like hospitality are closed under a lockdown and working is not at all possible.

To measure the capability of each worker to keep active under the lockdown, we calculate a ‘lockdown working ability’ index of workers (see Palomino et al. 2020). This measure takes into account the level of teleworking for each occupation (Dingel and Neiman 2020) and whether the occupation is considered essential or closed.

As shown in Figure 1, the average lockdown working ability index varies significantly across European countries with the Netherlands (0.61) the best prepared and Bulgaria (0.37) the worst prepared.

Figure 1 Lockdown working ability index across Europe

In Table 1 we highlight that our index varies significantly not only by country but also by:

  • Gender: Women are less affected by social distancing than men.
  • Type of job: Temporary and part-time workers are in general worse-prepared than their permanent and full-time counterparts.
  • Education: There is a strong positive relationship between the level of education and the capacity to work under a lockdown in all European countries.

Teleworking capability is strongly correlated with higher wages both across occupations and across average levels by country (r = 0.76). However, the correlation between the lockdown working ability index and the average annual salary in a country is positive but very small (0.06).

Once essential and closed occupations are taken into consideration, the changes in wage inequality caused by the lockdown are difficult to foresee based only on the average level of ability to work under lockdown, and one needs to look at how potential wage losses are distributed.

Table 1 Lockdown working ability in Europe

Wage losses and lockdown incidence curves

Because not all workers are able to perform their job at home and some activities are closed, there will be potential wage losses for a significant part of the labour force that cannot fully work during the lockdown.

To simulate these wage losses, we consider several possible scenarios. Here, we show the results for (i) two months of lockdown and (ii) two months of lockdown plus six additional months of de-escalation with only partial functioning of the closed activities (80% of capacity).

Although each European country may have followed slightly different lockdown and de-escalation strategies, we simulate the same scenarios for all countries to ensure that differences across countries are exclusively due to their productive structure.

After ordering workers by wage centiles, we represent the relative change in their wage in ‘lockdown incidence curves’ (Figure 2), which makes it easy to appreciate which part of the wage distribution (low, middle, high) suffers the largest relative wage losses.

For a lockdown of two months, wage losses are sizeable across the wage distribution but vary significantly with the centile, being above 10% (of the annual salary) at certain percentiles in some countries.

Figure 2 Lockdown incidence curves in Europe (two months of lockdown)

Notes: The four panels show lockdown incidence curves (wage distribution versus wage loss, two-month lockdown scenario) for different groups of countries with similar curves.

As noted above, there is no straightforward relationship between the average wage of a country and its distribution of wage losses. Thus, we observe that the distribution of wage losses is similar for Norway and Greece (panel b), and Ireland and Cyprus (panel c), despite the fact that these countries have significantly different average wages.

Changes in poverty and wage inequality

The lockdown increases poverty in all countries. First, we find a 10.0% mean loss rate (P) for poor workers − those below 60% of the median wage − for the average of European countries under a lockdown of two months. This mean loss rate for poor workers goes up to 22.5% when an additional 6-month period with partial functioning of closed activities is considered. The mean loss rates are also sizeable by country (Table 2).

Second, the proportion of poor workers (headcount index, H) increases significantly for all European countries. The average increase is 4.9 percentage points under two months of lockdown and 14.5 percentage points with an additional partial closure period of six months.

These values imply that − in the absence of counteracting government measures − the percentage of poor people in Europe may substantially increase, even if lockdown does not last long.

By country, under the two-month lockdown scenario, we find the highest increase in poverty in Croatia by the headcount index, and the smallest increase in Switzerland.

When comparing wage inequality after the lockdown with the baseline, we observe that inequality increases in all European countries (Table 2). The countries with the lowest increases in the Gini coefficient under a two-month lockdown are the Netherlands (2.2%), Norway (2.3%), France (2.3%), Switzerland (2.6%), and Germany (2.6%). On the other extreme of the spectrum, we find Cyprus (4.9%), Czechia (4.8%), Hungary (4.7%), Slovenia (4.7%), and Slovakia (4.6%).

With an additional six-month period during which closed activities are functioning at 80%, the countries with the lowest increases in the Gini coefficient are Denmark (9.5%), France (9.9%), the Netherlands (10.5%), the UK (10.8%), and Germany (10.9%). Countries with the highest increases are Slovakia (21.2%), Cyprus (20.0%), Hungary (19.6%), Czechia (16.0%), and Slovenia (15.9%).

 Table 2 Poverty and inequality changes in Europe

Notes: P is the mean loss rate for the poor, H is the headcount index, and G is the Gini inequality index. CL is partial closure, while 2m refers to 2 months. ∆RG is the relative change in the Gini index.

Finally, wage inequality both within and between European countries increase under a two-month lockdown, but inequality of wages inside countries increases more (5.04%) than inequality between countries (2.44%). Countries’ average wages diverge with the lockdown, although the main change in wage inequality happens within (not between) European countries.

In sum, our analysis reveals that the lockdown and de-escalation periods will potentially increase poverty and inequality sizeably in all European countries, even without accounting for second-round effects. Given that early relaxation of containment measures could have devastating effects for the health of citizens, we advocate for public policies that alleviate the distributional consequences that the lockdown may otherwise have.

 

21 settembre 2020

CHRISTOPHER ADAM, MARK HENSTRIDGE, STEVAN LEE  

The impact of global economic disruption is as big a threat to low-income countries as the direct effects of COVID-19

(full article – VoxEu CEPR 08 September 2020 – : https://voxeu.org/article/impact-global-economic-disruption-big-threat-low-income-countries-direct-effects-covid-19)

Abstract: The small open economies of sub-Saharan Africa are substantially constrained in their ability to respond to the COVID-19 shock through fiscal adjustment. The scale of contraction in external demand, combined with limited fiscal space, means that without substantial external support, feasible policy packages in many of these countries translate to austerity programmes. This column uses a dynamic general equilibrium model calibrated to data from Uganda to characterise the macroeconomics of the pandemic and its aftermath in sub-Saharan Africa. It finds that the recovery depends significantly on how the public finances are restored to sustainability, and may be accelerated with external support.

 KeywordsCovid-19, Development, Global Economy, Low-income countries

The COVID-19 pandemic has not erupted across Africa with the ferocity it has elsewhere, at least not yet. Recorded COVID-19 deaths across the continent stood at around 25,000 by mid-August 2020, with approximately half of these recorded in South Africa. This is around 3% of global fatalities while Africa accounts for 17% of global population – although there are concerns about underreporting of cases and fatalities.

But the economic effects of the pandemic are already widespread and disproportionate to the public health impact. This reflects the rapid and aggressive implementation of lock-down measures across most of sub Saharan Africa, from as early as the second week in March (Hale et al. 2020). These have had a direct impact on economies, curtailing economic activity, forcing businesses to operate at inefficient scale: lockdowns are a significant supply shock (Brinca et al. 2020). Subsequently, they reduce domestic demand and further squeeze tax revenues just when governments are seeking to increase spending on health and social protection.

The bigger part of the economic hit, however, comes from the effects of the sharp contraction in global economic activity. The collapse in key commodity prices, most notably oil and minerals (although not gold); the effective closure of key export service sectors, including tourism; the sudden stops to new debt and FDI flows; and the drying-up of remittance flows constitute an external demand shock that is both unprecedented in scale (at least outside situations of outright conflict) and is highly correlated across countries. As many commentators have noted, without a significant and coordinated international response the depth and likely duration of this shock puts at risk the development gains achieved by many African countries over the last 20 years.

The small open economies of sub-Saharan Africa cannot ‘do whatever it takes’: their capacity for fiscal adjustment – to support private absorption and welfare while still delivering critical public services and sustaining public investment – is highly constrained. And the scope for monetary policy to offset the domestic demand shock is limited and ineffective in the face of the international demand shock. In advanced economies, governments and central banks have used their balance sheets to support unprecedented stimulus programmes, which by early June 2020 were estimated by the IMF to be approaching US$ 10 trillion (Battersby et al. 2020). In addition to meeting the direct costs of tackling the pandemic, fiscal deficits have increased very sharply to provide transfers to firms and household, labour furlough schemes, debt forbearance, tax holidays, and other forms of relief.

In contrast, for countries where domestic borrowing capacity is highly limited and access to external markets is either impossible or prohibitively expensive, the fiscal tide flows in the opposite direction. While governments and central banks have moved decisively to ring-fence direct public health expenditures, to offer tax relief and to loosen monetary policy where possible, these measures are modest at best and funded in part by cuts elsewhere in public expenditures, most notably in public investment. The scale of the contraction in external demand combined with limited fiscal space means that without substantial external support, feasible policy packages in many sub-Saharan countries look much more like austerity programmes than the Keynesian stimulus seen elsewhere in the world.

Our recent paper (Adam et al. 2020) uses a dynamic general equilibrium numerical simulation model to characterise the macroeconomics of the pandemic and its aftermath in sub-Saharan Africa. Calibrating the model to baseline data from Uganda and using emerging evidence on the severity of the global economic recession, we simulate the economic impact of the pandemic (the vertical bars) and how these paths are affected under alternative national and international policy responses (the lines).

Figure 1 The impact of the pandemic and paths to recovery

Source: Adam et al. (2020). DOI: 10.1093/oxrep/graa023

With so much of the impact coming from the effect of the global slowdown on countries’ import capacity, the hit on consumption is substantially larger and more persistent than the effect of lockdown on domestic production and spending (Figure 1). Recovery depends on how the public finances are restored to sustainability. Even if politically feasible, raising taxes and cutting spending makes for a slow private sector recovery, especially if spending cuts fall on public investment and the maintenance of the public capital stock. This is particularly so in environments where tax systems are narrowly based and plagued by ‘leakages’ and exemptions. In such circumstances there are no easy public policy options.

If Official Development Assistance (ODA) supports domestic fiscal adjustment, the recovery may be accelerated. External finance widens fiscal space, so that domestic policy choices are less awful; it relieves the need to raise distorting taxes and cut productive spending. We calculate that a net increase in ODA of US$40-50bn would substantially ease the domestic adjustment challenge, even if this level of support cannot fully protect private incomes and expenditures, which matches recent estimates from the Director of the African Department at the IMF (Selassie 2020). Recovery would be further hastened if governments are able to take advantage of disruptive economic conditions to accelerate reforms designed to strengthen systems for tax collection and public spending.

External finance at this scale is significant but not unprecedented, either in the context of sub-Saharan Africa, being comparable to the HIPC (heavily indebted poor countries) debt relief programme in the mid-2000s, or in comparison to the approximately US$10 trillion that advanced economy governments have deployed to protect their own economies. To date, however, even though the IMF and World Bank have moved quickly to support many low-income countries, the response of the advanced economies remains muted.

There appears to be little appetite for a sustained coordinated effort amongst the leading economies to support adjustment in the LICs (McKibben and Vines 2020). This is short-sighted and contrary to appeals for action to the G20 (Berglof et al. 2020). The case for increased support can be based as much on national self-interest as on the moral and developmental arguments that hinge on growth and poverty reduction, especially at the bottom of the income distribution. There is a clear imperative to conquer the COVID-19 pandemic at a global scale so that it does not rip through the OECD again. Moreover, there is potential scope to ‘build back better’ with public investment that contributes to reduced carbon emissions, and supports economies to make the most of the potential demographic dividend offered by a youthful labour force across sub-Saharan Africa.

 

14 settembre 2020

GIOVANNI BUSETTA, MARIA GABRIELLA CAMPOLO, DEMETRIO PANARELLO

COVID-19 lethality in Italian regions: underestimation of positive cases or lack of sanitary structures?

 Abstract The lethality rate associated with the new Coronavirus SARS-CoV-2 in Italy is currently one of the highest in the world. Lethality rate that many analyses claim is unreal. While the verification of the positive effects could lower the lethality rate, analyzing the way in which the pandemic has been tackled at hospital level could give a more complete view of the phenomenon.

Key words: COVID-19, intensive care, lethality rate, SARS-CoV-2, swabs.

The lethality rate obtained from Italian data was, at the 30th of March, the highest in the world (11.4%). However, the apparent lethality rate (Case Fatality Rate, CFR) is very different from the real one (Infection Fatality Rate, IFR), which an analysis performed in February (Verity et al., 2020) estimated for China at 0.66%. It can be argued that the CFR, calculated by dividing the cases confirmed by the swabs over the number of deaths caused by the SARS-CoV-2 virus, is an unrealistic index of the lethality of the new Coronavirus, which is therefore overestimated. The Imperial College COVID-19 Response Team (Flaxman et al., 2020) estimated that the real number of people infected by the virus in Italy, at March 28th, was as many as 5.9 million (9.8% of the national population). Even if we consider that the real number of deaths is plausibly higher than the declared one, the real lethality rate could thus approach a more truthful threshold compared to the official rate. It is not realistic, however, to believe the real Italian lethality rate to be similar to the one estimated for China: the disease is lethal especially for older people who, in Italy, represent a much more substantial strand of the population than the Chinese one.

When an infected person is found, a good practice would be to buffer all the people with whom the infected individual has recently been in contact, even if they apparently do not show any symptoms attributable to COVID-19. Starting from this assumption, we would expect that in the most efficient regions (id est, the regions that adopt a more accurate plan for the administration of the swabs) the number of positive cases “tracked down”, following the swabs, is not particularly high. On the contrary, in the less efficient regions, only the most serious cases are expected to undergo swabs and, therefore, a very high number of swabs should give positive results.

Low-lethality regions are found in all the macroareas of the country (see Figure 1).

Figure 1 – Average lethality by region

Reports on positive cases and deaths are published on a daily basis. In the ideal case, from the moment of the onset of symptoms, people should be immediately subjected to a swab and be included in the calculation of positive cases, at most, within the report of the following day. The median time that goes from the onset of symptoms to hospitalization has been estimated by the “Istituto Superiore di Sanità” in 4 days; from hospitalization to death, the median is also 4 days. Therefore, we estimate that the deaths of a certain day are attributable to the positive cases confirmed 7 days before. Looking at the following graph (Figure 2), we can see that some regions (Lombardy, Lazio, Liguria, Marche) had to face the emergency with an excessive number of serious cases, which required not only the hospitalization of the positive patient, but even intensive care, bringing hospitals to the limit. By crossing these data with the lethality rates shown in the previous graph (Figure 1), it can be observed that, in the initial period, the lethality of the regions initially affected does not seem to differ much from the one observed in the rest of the country in the two subsequent periods.

 

Figure 2 – Positive cases in Intensive Care over Positive cases

At any time, the reported lethality rate should ideally be lower than the real one, as the share of new positives cases should be updated about 7 days later. In the central-northern regions, where the first cases of COVID-19 emerged many days earlier than in the South and which show a higher daily increase in positive cases, the lethality rate should therefore be lower.

However, the trend in the lethality rate shows a growing drift in all Italian regions, indicating that the contagions are estimated with less accuracy day by day, as the contagion becomes more widespread: this is an effect of sampling, given that, when there are fewer infected subjects, it is easier to trace them more precisely, considering the maximum limit of swabs that can be made daily.

 

Figure 3 – Intensive care over total cases

The Intensive care beds needed by each region are calculated from the estimated number of infected people in the region. As can be seen from the previous graph (Figure 3), the lethality rate seems to be relatively low in the first 12 days from the onset of the pandemic crisis, while in the last 12 days (T36 = starting from the 25th day and up to the 36th) the relationship between the lethality rate and the share of patients admitted to intensive care over the amount of positive cases is inversely proportional. On the one hand, at this point one might wonder whether the high lethality rate in some regions may depend on the high number of patients who may need intensive care but are not able to access it, or on an incorrect estimate of the real number of infected people. On the other hand, the lethality rate depends on the number of infected people. As it is not possible to have a real estimate of COVID-19 positive patients, it seems that the estimated lethality rate is higher than the real one. For this reason, we are going to check one last relationship: the one between the lethality rate and the number of positive patients calculated over the number of swabs performed (Figure 4).

Figure 4 – Positive cases over number of swabs

As the ratio between positive cases and number of swabs increases, the lethality rate should increase about 7 days after the publication of the result of the swab (Figure 4). Since a low number of positive cases with respect to the swabs carried out denotes a sunburst investigation around each positive case detected, the correlation between this and low lethality levels indicates an estimate of the infected people that does not deviate excessively from the real one.

If the number of real positive cases is massively greater than the official number, the intensive care beds will be insufficient and not all symptomatic patients will be able to receive adequate care. It would therefore be desirable, in order to quickly identify as many positive cases as possible, to use structures and staff of private analysis centers, in order to increase the number of swabs analyzed daily, which is currently absolutely insufficient.

 References

Flaxman, S., et al. (2020). Estimating the number of infections and the impact of nonpharmaceutical interventions on COVID-19 in 11 European countries. Available at https://www.imperial.ac.uk/media/imperial-college/medicine/sph/ide/gida-fellowships/Imperial-College-COVID19-Europe-estimates-and-NPI-impact-30-03-2020.pdf.

Verity, R., Okell, L. C., Dorigatti, I., Winskill, P., Whittaker, C., Imai, N., … & Dighe, A. (2020). Estimates of the severity of COVID-19 disease. medRxiv.

 

7 settembre 2020

MICHELE VALSECCHI, RUBEN DURANTE

Internal migration and the spread of COVID-19

(full article – VoxEu CEPR 02 September 2020 -:

https://voxeu.org/article/internal-migration-and-spread-covid-19)

Abstract: Many internal migrants returned to their place of origin after the initial outbreaks of COVID-19 and before national lockdowns were in place. Has this behaviour contributed to the further spread of the pandemic and to its heavy death toll? Looking at the case of Italy and using data on the place of origin and destination of internal migrants, this column finds that provinces more exposed to return migration from areas hit by the pandemic earlier on experienced considerably more COVID-19 deaths in the ensuing months.

Keywords: coronavirusCOVID-19Italymigrationmortality

COVID-19 has claimed over 600,000 lives worldwide and has imposed unprecedented economic damage (World Health Organization 2020). Though virtually no country was spared by the pandemic, its impact has varied considerably across countries, with some managing to respond much more effectively than others. Some studies have investigated what factors may explain these differences, from the adoption of different policies (Hsiang et al. 2020, Fang et al. 2020 and references therein) to cultural factors that may have contributed to the success of social-distancing measures (Barrios et al. 2020, Durante et al. 2020a, 2020b, Giuliano and Rasul 2020).

One aspect that remains relatively unexplored concerns how the virus spread across space from the first limited outbreaks to entire countries, and, in particular, the role that internal migration may have played in this context. Extensive anecdotal evidence and news reports indicate that, following the early outbreaks and the subsequent economic slowdown, many internal migrants decided to return to their place of origin. This was especially true for recent migrants who maintain strong ties with their place of origin but have a limited support network in the destination place. In some cases, the decision to ‘return home’ was prompted by the announcement by local authorities of the imposition of ‘red zones’ and other mobility restrictions (Giuffrida and Tondo 2020).

In principle, the return of migrants to their hometowns from places heavily hit by the pandemic may have contributed to the spread of the virus since these individuals could have been asymptomatic carriers or may have contracted the disease while travelling. This could ultimately result in places with more returning migrants experiencing more COVID-19 cases and deaths. However, no systematic evidence exists about the plausibility and importance of this channel.

In a recent working paper (Valsecchi and Durante 2020), we attempt to fill this gap by investigating the relationship between internal migration and the spread of COVID-19. We focus on Italy, one of the countries most affected by the pandemic and traditionally characterised by considerable flows of internal migrants, most notably from southern to northern regions.

We exploit the fact that, after the first outbreak of COVID-19 in late February, most cases were concentrated in a small number of provinces in the regions of Lombardy, Veneto, and Emilia-Romagna. Using comprehensive data on the place of origin and destination of individuals having migrated over the previous years, we construct a measure of the potential for return migration from early-outbreak areas to each province. We then examine whether provinces with more migrants potentially returning from outbreak areas experienced a higher number of COVID-19-related deaths and higher total excess mortality over the ensuing months.

One key aspect of our analysis is that we use information on migration patterns that pre-date the COVID-19 pandemic and cannot therefore be affected by the latter. Another important element is that we exploit differences between provinces in the number of migrants to specific areas that were affected by the pandemic earlier on, controlling for total outmigration. This alleviates possible concerns that a particular characteristic of the province of origin (e.g. local institutions, health capacity, and civic capital) may drive both migration and COVID-19 mortality.

Furthermore, to rule out the possibility that our findings are driven by a generic North-South divide, we compare the evolution of COVID-19 mortality between provinces of the same region. Our main outcome of interest is the number of deaths due to COVID-19, which is available for each province in each month. However, to alleviate the concern that COVID-19 deaths may be misreported or underestimated, and that this bias may differ between provinces (Ciminelli and Garcia-Mandicó 2020a, 2020b), we also consider the evolution of total (excess) mortality. This allows us to test the effect of return migration on the total number of deaths relative to those recorded in the same month of previous years.

Finally, to shed light on the mechanism trough which return migration influences the spread of COVID-19 we exploit data on actual mobility between provinces in the monts before and after national lockdown . These high-frequency date are based on phone-tracking records and provide a clear picture of the total number of daily displacements between out.

The evidence emphasises the potential role played by internal migration in the context of a pandemic. Previous work has shown that, by reinforcing economic connections between different areas of a country, internal migration can boost aggregate productivity (Bryan and Morten 2019), help dissipate local negative economic shocks (Monras 2018), and let migrants’ households at origin diversify risks (Gröger and Zylberberg 2016). Our results indicate that the opposite may apply to the case of health shocks: they may propagate shocks and constitute an additional risk for households in migrants’ hometowns.

While the issue of international migration and the necessity to close the frontiers to prevent the further spread of the virus has attracted vast political debate, the discussion on how to deal with internal migration has been rather limited, arguably due to the difficulty, both logistical and political, of imposing long-lasting restrictions to mobility within a country.

An alternative and less invasive approach would be for governments to keep up-to-date databases of migrants, particularly recent ones, to be in the position, when a new outbreak occurs, to reach out to them to raise awareness of the risks of travelling for themselves, their families, and the community at large. Information on migration-related connections between provinces could also be used by policymakers to predict what areas of the countries a health emergency may likely extend to and to allocate public medical and economic resources accordingly break areas and any province from which migrants originate.

3 agosto 2020

MICHELE LIMOSANI

La  “Green Economy”: un settore strategico per la città di Messina

Abstract:  Con il progetto “Il sentiero dei parchi”, il Governo scommette sulla “green economy” e sull’economia dei parchi. In particolare, soffermandosi sul quadro messinese e siciliano, si rileva che, mentre i segnali di attenzione verso questo settore strategico restano deboli,  si registra una cronica carenza di visione a lungo termine e a vasto raggio, sempre più necessaria data la crisi devastante determinata dalla contingenza epidemica,  e di “grandi progetti”, nonostante le numerose potenzialità.

Keywords: “Sentiero dei parchi”, “green economy”, strategie di investimenti, rilancio economico, itinerari escursionistici, economia dei parchi.

Il Governo nazionale scommette sulla green economy e sull’economia dei parchi. Lo annuncia il ministro per l’ambiente Sergio Costa durante la Giornata Europea dei Parchi che si è celebrata nei giorni scorsi e nella quale è stato presentato il progetto “Il sentiero dei parchi” (un itinerario escursionistico che toccherà tutti i parchi nazionali del nostro paese) e richiamato lo stanziamento, già deliberato nella legge di bilancio, di 35 milioni di euro per il periodo 2020-2033 per la manutenzione ed il potenziamento delle reti sentieristiche. In Sicilia, e nella nostra città metropolitana in particolare, non si colgono invece segnali di attenzione verso questo settore strategico e si registra una cronica carenza di visione e di grandi progetti, soprattutto da parte di quei movimenti e associazioni che si impegnano a promuovere la realizzazione di un’economia più sostenibile.

Ora, non credo esista ombra di dubbio sul fatto che la green economy costituisca una grande opportunità di sviluppo per la nostra città; basti pensare che da un punto di vista territoriale la città metropolitana di Messina si qualifica come una grande area protetta dal polmone verde (i Peloritani, l’Alcantara e il parco dei Nebrodi) e un lungo affaccio sue due mari (i waterfront della città metropolitana). Tra il “polmone verde” e il waterfront si inseriscono poi i sistemi fluviali (le blue ways) e i loro bacini che rappresentano un trait d’union tra queste due tipologie di aree.

Un progetto di sviluppo della città metropolitana di Messina, quindi, non può prescindere dalla valorizzazione dei due parchi già esistenti (il parco naturale dei Nebrodi e il parco fluviale dell’Alcantara) e dalla auspicabile istituzione del Parco dei Peloritani. La realizzazione di quest’ultimo completerebbe -dal punto di vista delle aree protette- il vuoto solo in parte colmato dalla presenza della riserva di Fiumedinisi e Monte Scuderi e faciliterebbe l’integrazione, attraverso la valorizzazione del sistema fluviale, della rete dei comuni collinari con la rete dei comuni marinari. Una triade spesso caratterizzata dall’uso dello stesso toponimo per indicare, contemporaneamente, il nome del borgo collinare, il nome del borgo marinaro e il nome della fiumara (come, ad esempio, Alì).

Se si tiene conto anche dell’istituendo parco dei Peloritani, il 76% dei Comuni della città metropolitana di Messina risulta compreso dentro un parco. Nessun’altra città metropolitana italiana ha un numero così alto di Comuni che partecipano a questo tipo di aree protette, per cui Messina si potrebbe qualificare, come spesso il prof. Gambino ha sostenuto, “la città metropolitana dei parchi”.

La vera sfida quindi sarebbe quella di realizzare il Parco dei Peloritani, integrare la rete dei parchi e delle riserve (l’arcipelago eoliano, la laguna di Tindari a Patti, la riserva verde e la riserva Marina a Milazzo) con la rete formata dall’armatura culturale del territorio e quella agro-ecologica, rigenerando i borghi e promuovendo un turismo sostenibile. Dentro i parchi, infatti, ci sono patrimoni storici e culturali di inestimabile valore che tramite opportuni processi di riqualificazione e di proposizione di servizi al turista, possono rappresentare una possibilità di sviluppo economico dal valore aggiunto incalcolabile. “Riscopri la natura, il mare, i monti, gli antichi sapori, i borghi e i mestieri”. E’ ovviamente uno slogan; ma in questa prospettiva venire a Messina per “spendere” sul territorio potrebbe avere un senso del tutto diverso da quello un po’ riduttivo e miope che in questi giorni si è diffuso nelle nostre piazze.

http://www.letteraemme.it/green-economy-michele-limosani-a-messina-poca-attenzione-verso-questo-settore-strategico/

27 luglio 2020

MICHELE LIMOSANI

 L’Università al tempo del Corona Virus

Abstract:  La riflessione riguardante gli effetti del Corona Virus coinvolge direttamente anche  il sistema universitario nazionale, che sta attraversando una vera e propria ‘rivoluzione tecnologica’ che investe l’attività di formazione, le modalità di organizzazione dei servizi e della gestione delle risorse umane; una rivoluzione che produrrà trasformazioni destinate  a protrarsi nel tempo.

Keywords:  COVID-19, sistema universitario nazionale, rivoluzione tecnologica, formazione a distanza, strutture complesse, telelavoro, smart working.

Esiste un filone di pensiero in Sociologia che sostiene come i cambiamenti istituzionali non sono sempre il risultato di piani intenzionali o di una chiara volontà. I mutamenti, ovviamente, possono riguardare anche le trasformazione organizzative e le abitudini di lavoro dei soggetti che animano le “strutture complesse”, abitudini che si sono consolidate e cristallizzate nel tempo e che rappresentano, spesso, il principale ostacolo al cambiamento organizzativo.

Una teoria, quelle delle “conseguenze inintenzionali”, che è possibile applicare nell’ambito del sistema universitario nazionale ed, in modo particolare, dell’Università degli Studi di Messina; struttura che, per la responsabilità e le funzioni che mi sono assegnate, mi capita di osservare un pò più da vicino. Come sta cambiando il modo di fare Università a Messina ai tempi del Corona Virus? Non è certamente un passaggio facile e indolore ma in questo momento nella nostra università è in corso una vera e propria “rivoluzione tecnologica” che investe l’attività di formazione, le modalità di organizzazione dei servizi e della gestione delle risorse umane; una rivoluzione che produrrà trasformazioni destinate a durare nel tempo.

E’ stata, per esempio, predisposta in brevissimo tempo -grazie ad uno sforzo immane da parte del nostro personale tecnico informatico- l’infrastruttura hardware e software per la video-conferenza e la teledidattica. Siamo oggi pronti a portare in qualunque luogo ed in qualunque tempo la presenza virtuale di ogni professore. Obiettivo straordinario se pensiamo che le attività precedentemente svolte dal nostro Ateneo in modalità e-learning non raggiungevano la soglia del 20%.

La fruizione on line dei contenuti ha comportato un’accelerazione a livello amministrativo della riorganizzazione dei servizi a supporto dell’attività didattica e la digitalizzazione delle procedure ammnistrative. Abbiamo già svolto nei giorni precedenti i primi esami di laurea in modalità telematica così come ormai quasi tutte le commissioni concorsuali dei ricercatori e degli assegnisti sono svolte on line. Le attività amministrative a supporto di queste attività, nel rispetto della trasparenza, pubblicità e sicurezza dei dati, sono state tutte realizzate in remoto (back office) per via telematica.

La digitalizzazione dei procedimenti ammnistrativi ha reso possibile sperimentare lo smart working. In queste ore una buona parte dei compiti amministrativi relativi alle procedure e alle attività di routine (autorizzazioni, certificazioni, emanazione decreti, controlli amministrativi), che tanto tempo e personale assorbono nella vita quotidiana delle strutture dipartimentali, sono svolte dai tecnici ammnistrativi in “modalità agile”, ossia dalle proprie abitazioni attraverso il tele-lavoro.

Come risulta evidente dai questi pochi esempi si tratta di una profonda trasformazione che investe tutte le attività dell’Università; un cambiamento non pianificato ma che l’emergenza Corona Virus sta generando a tappe forzate e in modalità “learning by doing”. Certo questo cambiamento porrà delle nuove sfide: come valorizzare il patrimonio di conoscenza e di competenze acquisite? Cosa preservare del passato e come riposizionare il nostro Ateneo nel contesto regionale, nazionale ed internazionale? Sono le sfide che attendono la governance una volta passata la bufera del Corona Virus; rimane il fatto, comunque, che questo sciagurato evento, suo malgrado, lascerà la nostra Università tecnologicamente più avanzata, più produttività e quindi più competitiva.

http://www.letteraemme.it/luniversita-ai-tempi-del-coronavirus-il-contributo-di-michele-limosani/

20 luglio 2020

MICHELE LIMOSANI

 Mes e sanità regionale. Quale modello per la fase post covid 19?

Abstract:  La generale riflessione riguardante gli effetti del coronavirus sulla sanità mondiale apre l’ulteriore riflessione sulla sanità regionale e su come potrebbe cambiare la sanità in Sicilia utilizzando le risorse disponibili. Le strade percorribili sono diverse: è più efficace orientare tutte le future risorse finanziarie e gli sforzi organizzativi sulla gestione delle emergenze sanitarie, sulla terapie intensive e quindi sul potenziamento delle infrastrutture ospedaliere, o è preferibile mettere in atto una strategia più “community based”, che limiti al massimo l’ospedalizzazione e sia in grado di produrre una trasformazione profonda della gestione del sistema della prevenzione, del monitoraggio e dei servizi domiciliari alla persona?  Il punto, adesso, è operare corrette scelte politiche.

Keywords:  COVID-19, sanità mondiale, sanità regionale, strutture ospedaliere, strategia “community based”, MES, Pandemic Crisis Support.

La Commissione Europea ha dato il via libera alla nuova linea di credito Pandemic Crisis Support a valere sulle risorse del MES e tutti gli stati membri, da ora in poi, avranno la possibilità di finanziare a basso costo investimenti sanitari enormi senza alcuna condizionalità. Un risultato che rende giustizia di un assurdo e sterile dibattito che ha ammorbato il paese; una ghiotta opportunità per il governo nazionale per aumentare la spesa sanitaria che negli ultimi anni ha subito tagli consistenti. La questione, quindi, non è più tanto quella di prendere questi soldi (sono disponibili circa 37 miliardi per il nostro paese), quanto piuttosto quella di decidere cosa fare con queste risorse. Quali sono le strategie da adottare? Quali sono le priorità? Proviamo, sia pur in modo sintetico, ad affrontare tali questioni.

Il prof. Alberto Zangrillo, primario dell’Unità Operativa di Anestesia e Rianimazione del S. Raffaele di Milano, nel suo recentissimo e-book “In prima linea contro il Coronavirus” sostiene che “il ricorso alla terapia intensiva è stata la misura del fallimento del sistema di prevenzione e di cura sanitario”. E mentre tutto ciò poteva essere giustificato all’inizio della crisi quando il virus ci ha colto impreparati, tale atteggiamento non può essere tollerato nella fase post crisi della virus; perseverare, diabolicus est. Secondo il prof. Zangrillo, ma non è l’unico scienziato impegnato su questo fronte, gli ospedali non sono la prima linea di difesa contro l’epidemia e rimangono una extrema ratio.

Un messaggio in controtendenza nel dibattito pubblico che rischia, tuttavia, di finire su un binario morto anche per via del gran battage pubblicitario sostenuto dalle tv e dai quotidiani sulla decisione di potenziare le strutture ospedaliere in termini di nuovi posti letto, ordinari e di terapia intensiva -nella sola provincia di Messina sono previsti 569 posti di cui 446 ordinari e 115 di terapia intensiva. Una scelta, lo ripeto, opportuna e doverosa nella prima fase della crisi in cui il motto è stato “mettiamoci al sicuro”, ma che sembra essere una decisione da sottoporre quantomeno ad una riflessione critica se riproposta anche nella fase post-crisi.

E’ efficace ed efficiente, dal punto di vista economico e sociale, orientare tutte le future risorse finanziarie e gli sforzi organizzativi sulla gestione delle emergenze sanitarie, sulla terapie intensive e quindi sul potenziamento delle infrastrutture ospedaliere? O, piuttosto, si deve favorire una strategia più “community based”, che limiti al massimo l’ospedalizzazione e sia in grado di produrre una trasformazione profonda della gestione del sistema della prevenzione, del monitoraggio e dei servizi domiciliari alla persona? Una strategia in cui le ASL e la rete territoriale dei medici di base e dei pediatri, le funzioni loro assegnate, le competenze, la tecnologia a disposizione, i modelli di gestione e di organizzazione, diventano questioni rilevanti?

Io non credo che con le risorse future disponibili potremo fare tutto (potenziamento strutture ospedaliere e medicina territoriale); ma se la scelta del governo regionale fosse quella di riprendere i 270 progetti infrastrutturali rimasti incompiuti, allora la direzione sarebbe già segnata e non coglierebbe il nodo del problema, e cioè la necessità di investire in prevenzione. Una seria e approfondita analisi del modello di gestione della sanità regionale, scevra dalle “pressioni” -anche legittime- che provengono dagli interessi organizzati, si rende necessaria. In questa prospettiva ci aspettiamo dalla politica regionale un contributo che non può limitarsi alla discussione sulle mascherine e sui tamponi (cosa peraltro buona e giusta), soprattutto quando ad essere in gioco c’è la salute dei cittadini.

 https://www.tempostretto.it/news/limosani-mes-e-sanita-regionale-quale-modello-per-la-fase-post-covid-19.html

13 luglio 2020

MICHELE LIMOSANI

 Il virus non conosce confini. In Italia sarà recessione o pitstop?

Abstract:  La generale riflessione riguardante gli effetti del coronavirus sull’economia a livello non solo mondiale, ma  locale,  rileva come la pandemia aprirà le porte alla recessione, determinando un forte calo nei livelli di produzione e di benessere. Le sorti dell’economia italiana dipendono dalla capacità di non stare troppo tempo ai box

Keywords:  COVID-19, economia mondiale, economia locale, recessione, “pit-stop”.

Il virus e la recessione

La crisi sanitaria, ormai è sotto gli occhi tutti, porterà in dote la recessione economica in tanti paesi dell’OECD, determinando un forte calo nei livelli di produzione e di benessere (l’economia reale dunque) che potrebbe, in assenza di interventi “illuminati” da parte delle autorità di politica economica, destabilizzare il sistema finanziario e quello bancario. Si tratta di una crisi che colpirà prevalentemente i paesi più ricchi e che, per la natura dello shock e per gli effetti da esso prodotti, non risulta paragonabile alla “grande recessione” del ’29.

Un virus senza confini

Il virus non conosce confini e, atteso l’elevato grado di integrazione e di interdipendenza tra i diversi paesi, risulta oltremodo impossibile arginare la propagazione degli effetti negativi della crisi economica. Siamo dunque in presenza di una recessione che impatta sul sistema economico mondiale e che necessita risposte di politica economica coordinate a livello globale ed, in primo luogo, tra quei paesi (Stati Uniti, Cina ed Europa) che insieme determinano l’80% circa della produzione mondiale. Questi grandi players hanno un comune interesse a cooperare per “salvare” i sistemi economici da cui -in buona parte- dipende la loro stessa ricchezza; ma allo stesso tempo può essere forte la tentazione di cogliere l’opportunità della crisi per modificare la distribuzione delle forze in campo e l’assetto geopolitico che ha caratterizzato, fino a questo momento, il contesto internazionale.

In Italia un “pit-stop”

L’economia mondiale e il nostro paese in particolare, quindi, subiranno -a causa del virus- un brusco “pit stop” la cui intensità è difficile da stimare e la cui durata dipenderà dalla nostra capacità di arrestare la pandemia. Fondamentale, tuttavia, sarà la ripartenza. Come la storia della formula uno insegna, anche una manciata di secondi in più nella ripartenza dai box può pregiudicare il raggiungimento di una posizione sul palco dei vincitori. Il tempo trascorso ai box, fuor di metafora, deve quindi essere ridotto al minimo ed impiegato per rimuovere tutte quelle criticità che influenzano negativamente la competitività del sistema produttivo; il motore della nostra economia deve, quanto prima possibile, ripartire.

Il ruolo dello Stato

La crisi economica, infine, ha riportato al centro del dibattito politico il ruolo dello Stato. Attenzione, tuttavia, a non buttare il bambino con tutta l’acqua sporca. “Il buon funzionamento del mercato dipende dal buon funzionamento dello Stato che non sono tra loro alternativi ma reciprocamente dipendenti”. Ed il ruolo dello Stato diventa essenziale ed insostituibile nel caso dei “beni pubblici” (salute, difesa, rispetto delle regole, istruzione), situazione nella quale il libero mercato è incapace di assicurare una distribuzione giusta e ottimale delle risorse.

La crisi un’opportunità

Certo, lo Stato è stato spesso carente e fonte di sprechi e di inefficienza. Ma questo tempo di crisi potrebbe essere il momento opportuno per intervenire e proporre quelle riforme tanto attese e a vantaggio di tutti (come quella della burocrazia) necessarie per far compiere un salto di qualità e consentire al paese di riprendere il posto che merita in Europa e nel contesto mondiale.

https://www.tempostretto.it/news/limosani-il-virus-non-conosce-confini-in-italia-sara-recessione-o-pit-stop.html

6 luglio 2020

MICHELE LIMOSANI

Covid e crisi. Ecco chi paga il conto più salato a Messina

Abstract: la crisi economica devasta sempre più la Città dello Stretto. Già nel 2018 (ultimi dati disponibili) il 43% dei residenti a Messina non ha dichiarato alcun tipo di reddito. Su questa fascia di popolazione   il Corona Virus ha generato un impatto dagli effetti dirompenti. La pandemia, difatti, ha provocato e provocherà ingenti danni e non solo sul piano della salute:  a pagare il conto più salato saranno i “piccoli” imprenditori ed alcuni soggetti in “nero”. E’ auspicabile pertanto che nella prossima manovra di bilancio sia previsto un congruo contributo a fondo perduto alle piccole imprese,  così come si evidenzia la necessità di estendere le misure finalizzate a sostenere i redditi degli indigenti e di quei numerosi soggetti che non godono di alcuna garanzia e protezione perché nascosti al fisco e alla società.

Keywords: Messina, crisi economica, economia post- COVID, sostegni economici statali, piccole imprese, lavoro “autonomo”, lavoratori in “nero”.

Chi pagherà il conto a Messina?

Chi sono i soggetti economici più esposti alla crisi del Corona Virus? Chi pagherà alla fine il conto? Per rispondere a tale quesito rivolgiamo lo sguardo alla tipologia dei redditi percepiti in città partendo subito da un primo dato. Nel 2018 (ultima informazione disponibile) il 43% della popolazione residente in città (circa 100.000 persone) non ha dichiarato alcun tipo di reddito. Se teniamo fuori da questo conto i giovani, ossia i soggetti di età compresa tra 0 e 19 anni, circa 40 mila persone, questo segmento di popolazione includerà, in prevalenza, moltissime donne che hanno rinunziato da tempo a cercare lavoro ed una cospicua fetta di soggetti che popolano il folto bosco del mercato nero, alcuni dei quali “sopravvivono” di espedienti. Difficile misurare l’impatto che il Corona Virus ha generato su questa fascia di popolazione, ma non escludo che gli effetti siano stati dirompenti; soprattutto per coloro che vivono di lavori -se così si possono definire- retribuiti ad ore e a giornate.

Chi è garantito dallo Stato

Secondo elemento. E’ noto che i soggetti che dichiarano redditi da lavoro dipendente e da pensione costituiscono il 90% circa del totale delle dichiarazioni fiscali. Ora, i pensionati e i pubblici dipendenti hanno i redditi garantiti dallo Stato. Anche per i dipendenti regolarmente assunti dalle imprese private, tuttavia, lo Stato è intervenuto attraverso l’erogazione della cassa integrazione (anche quella in deroga). C’è stato in Sicilia, a causa di una inefficiente burocrazia regionale, un forte ritardo nell’erogazione di tale contributo. Ma ciò che conta è che anche la stragrande maggioranza di questi redditi è stata garantita dallo Stato. I percettori di redditi da immobili, inoltre, -specie quelli concessi in locazione alle attività commerciali- sembra si siano garantiti da soli. I commercianti hanno lamentato spesso la mancanza di sensibilità da parte dei proprietari degli immobili che, al di là delle oggettive difficoltà, hanno comunque preteso il pagamento del canone di locazione.

La strage degli autonomi

Terzo elemento. Nel caso dei redditi da lavoro autonomo la situazione è leggermente più articolata. In primo luogo coloro che dichiarano redditi da lavoro autonomo (artigiani, professionisti, agenti di commercio, etc…) sono poco più di 3.000. All’interno di tale categoria, inoltre, si trovano soggetti con fasce di reddito molto variegate; dal coloro che guadagnano 15.000 euro l’anno (piccoli artigiani) a riconosciuti professionisti con redditi superiori ai 100.000 euro. Una parte dei lavoratori autonomi (avvocati, notai, commercialisti), poi, lavora a “prestazione” e spesso può risultare difficile individuare quante prestazioni sono state interrotte in questo periodo. Il governo, comunque, è intervenuto in questo settore con un contributo destinato ai lavoratori autonomi di 600 euro. Si tratta di un modesto sussidio e tanti reclamano interventi più consistenti. E‘ pur vero, tuttavia, che in molte professioni, vedi quella degli avvocati per esempio, i problemi di natura economica vengono da lontano ed è ragionevole pensare che la crisi del corona virus li abbia soltanto fatti emergere nella loro cruda oggettività.

Le piccole imprese in agonia

Dulcis in fundo la tipologia sicuramente più colpita dalla crisi, i redditi da impresa e soprattutto quelli della piccola impresa, individuale e/o familiare, con un scarso numero di dipendenti, rimasta ferma in questo periodo. Come è noto il settore delle piccole imprese presentava già prima della pandemia enormi criticità. Nel 2018 erano più di 8.000 le imprese inattive e circa 5.000 le ditte individuali che, registrando perdite di esercizio nell’anno corrente, presentavano un imponibile pari a zero. Non è dato sapere quante di queste aziende riprenderanno le attività e se la crisi ha distrutto irreversibilmente quel poco di capitale umano e finanziario che consentiva loro di sopravvivere. Per le piccole imprese rimanenti (altre 5.000) la sfida è quella della ripartenza.

Quei 600 euro dal governo…..

Il governo è intervenuto anche a sostegno dei redditi dei piccoli imprenditori con l’erogazione delle 600 euro; una somma irrisoria, tuttavia, che non è stata nemmeno sufficiente per coprire quei costi che non è stato possibile rinviare per decreto. Il governo nazionale si è inoltre preoccupato di far pervenire liquidità alle imprese attraverso le garanzie prestate al sistema bancario; ma sempre di un debito si tratta, anche se a costi minimi, un debito che peserà nella fase di ripartenza dove serviranno inevitabilmente risorse aggiuntive. In estrema sintesi, quindi, perdite significative, mancato guadagno, maggiore debito, fatturato azzerato e per molte imprese (specialmente quelle che operano nel settore del commercio e della ristorazione) un futuro incerto. Cosa chieder di più?

Pagano i più “piccoli”

A pagare il conto più salato saranno quindi i “piccoli” imprenditori ed alcuni soggetti in “nero”. E’ auspicabile pertanto che nella prossima manovra di bilancio sia previsto un congruo contributo a fondo perduto alle piccole imprese, calibrato sul fatturato registrato nel corso dell’anno precedente, a parziale ristoro delle perdite subite e per sostenere la fase di ripartenza; così come si renderà necessario estendere le misure finalizzate a sostenere i redditi degli indigenti e di quei numerosi soggetti che non godono di alcuna garanzia e protezione perché nascosti al fisco e alla società.

https://www.tempostretto.it/news/limosani-covid-e-crisi-ecco-chi-paga-il-conto-piu-salato-a-messina.html

 

18 giugno 2020

MICHELE LIMOSANI

Il futuro di Messina dipende anche da noi

Abstract: L’economia della nostra città necessita di uno shock, un disperato e, forse ultimo, tentativo per evitare che la città precipiti, anche per colpa del corona virus, in uno stato di coma irreversibile; una città fortemente ridimensionata nella sua capacità produttiva, nei livelli di occupazione e di ricchezza in possesso delle famiglie.

Keywords: Messina, New Green Deal, attraversamento dello Stretto, rinascita economica, interventi strutturali, European recovery Program

Due progetti

Dopo la proposta del “New green deal” (Messina la città dei parchi) -avanzata nei giorni scorsi- vorrei proporre al pubblico dibattito altri due progetti che sono in grado di produrre un impatto dirompente sul sistema economico locale. Sono interventi che necessitano di un cambio radicale del paradigma dominante nella gestione amministrativa delle risorse umane e finanziarie e delle regole che disciplinano l’affidamento dei lavori pubblici (codice degli appalti). Si escludono, inoltre, assegnazioni di sussidi diretti alle famiglie; aiuti alle imprese, piccole o grandi che siano; trasferimenti alle pubbliche amministrazioni per spese correnti ed erogazione di servizi. Parliamo, invece, di interventi infrastrutturali che mirano a generare opportunità di investimento per le imprese esistenti e quelle che verranno dall’esterno; aziende pronte a scommettere su un territorio che ha deciso di “svoltare”.

Messina-Reggio

Ecco, in estrema sintesi, le due linee progettuali. Il primo progetto è quello di realizzare l’attraversamento stabile dello Stretto e far diventare la conurbazione MESSINA-REGGIO un nodo del corridoio europeo scandinavo mediterraneo. La conurbazione dello stretto diventerebbe così il baricentro di una rete di nodi connessi dall’alta velocità che collega sei città metropolitane del mezzogiorno: NAPOLI e BARI a nord, CATANIA e PALERMO a Sud. Sarà necessario, inoltre, completare e potenziare tutte le connessioni, ferroviarie, stradali e marittime per rendere facilmente accessibili al corridoio europeo le aree portuali (Messina, Milazzo, Tremestieri, Porto storico), quelle aeroportuali (Catania-Reggio), le aree industriali della nostra ex-provincia (identificate nel piano ZES), i distretti turistici, i parchi e le riserve. Si tratta, infine, di realizzare un sistema della mobilità “sostenibile” che, a partire dal nodo ferroviario della riqualificata e/o realizzata ex-novo “stazione centrale” (nodo del corridoio europeo), si snoda lungo la città da nord a sud e si protende poi verso il continente per raggiungere Reggio Calabria, il porto e l’aeroporto dello Stretto; una rete infrastrutturale gestita con le nuove tecnologie che innerva la conurbazione MESSINA-REGGIO e che proietta lo stretto nel mediterraneo. Il secondo progetto riguarda un “grand programme de rénovation urbaine”, un progetto ambizioso di riqualificazione urbana della città. Riabilitare, rigenerare, ri-pensare le periferie ed eliminare alla radice il problema atavico delle “baracche”. E’ appena iniziato l’iter legislativo sul risanamento in commissione Ambiente alla Camera; è un tema sul quale la politica non può giocare di fioretto o contendersi il palcoscenico. Insieme dobbiamo chiudere una volta per sempre i conti con il passato, la città non può lasciarsi sfuggire questa occasione.

Il water front

Funzionale, poi, allo sviluppo della città, è la valorizzazione del porto di Messina e del water front, a partire dal polo culturale del Margherita, passando per la zona falcata e gran parte delle aree ancora oggi asservite al passaggio dei binari ferroviari. Per recuperare poi la simbiosi smarrita tra il porto e il limitrofo tessuto urbano di Messina si dovranno valorizzare a) i poli economici, che avranno un grande impulso dalla costituzione di una poliedricità di “centri commerciali naturali” da realizzare in aree strategiche della città; b) i poli culturali di grande prestigio (come il Duomo, Santa Maria Alemanna, la chiesa dei Catalani e il borgo degli antichi mestieri (Tirone), c) la stazione marittima, destinata così a diventare il gateway della città. Interventi che nel complesso dovranno essere pensati e progettati in chiave di sistema, coerentemente con una visione di città più green, più smart e che possano dare un grande impulso alla edilizia, cuore pulsante della nostra economia.

Le risorse

Dove troveremo le risorse per tutti questi grandi progetti? Non preoccupatevi, l’Europa metterà a disposizione del nostro paese (e la proposta della commissione che sarà discussa nel prossimo consiglio europeo) 170 miliardi attraverso l’European Recovery Program, di cui il 34% dovrebbe essere investito nel sud del paese. Quante risorse arriveranno in città e quali progetti saranno proposti in ambito europeo dipende dal governo nazionale; ma dipende anche da tutti noi. Adesso o mai più.

https://www.tempostretto.it/news/limosani-il-futuro-di-messina-dipende-anche-da-noi.html

16 May 2020

 JOHN COCHRANE

Covid and economics publishing

Abstract: The pandemic is dramatically illustrating one area in which the epidemiologists are beating the economists about 100-1: publishing. Scientific publications are reviewed and posted in days, contributing in real time to the policy debate. Economists are writing papers in a similar flurry.  But when will these papers be peer reviewed? Where will they be published?

Keywords: COVID 19 pandemic; world economy; economics publishing

 

The pandemic is dramatically illustrating one area in which the epidemiologists are beating the economists about 100-1: publishing. Scientific publications are reviewed and posted in days, contributing in real time to the policy debate.

Economists are writing papers in a similar flurry. They are writing really good, thoughtful, well done papers that are useful to the policy debate. See the NBER website for example, or SSRN. See my last post and previous one for several great examples.

But when will these papers be peer reviewed? Where will they be published?

Not every new paper is right, and the review and comment process improves economic papers a lot.

Economics publishing is stuck in a leisurely 19th century process. It typically takes several years from completing a project to its online publication, and often another year to print. And “completing” already includes  pre-submission vetting through conferences, correspondence, seminars and working papers. I often wait a year to hear the first review of my papers. Even the best journals try for 6 weeks.  Several rounds of revisions are almost universal. It is typical to be rejected, shop the paper to several journals who reject it (after 6 moths to a year), hear the same comments from different referees, until you find an editor who likes the paper. (Almost all of my papers have been rejected at least once. My record is 7 times.)

As a result, academic journals long ago ceased to be avenues for communication. They are archives, and certifiers for tenure committees that don’t trust themselves to read papers. Individual websites, and working paper series such as NBER and SSRN have taken over the communication function. But not every paper is right, and that means little of our communication takes place after any peer review.

This state of affairs has a supply effect. I cheer my colleagues writing these papers. But where in heaven’s name are they going to publish the papers? When, a year from now, the first reviews come back, will the editors still find the papers  interesting and relevant? How will you fill in the increasingly mandatory section on “why this is important” and “policy implications” a year, or two years from now? The referees will demand a literature review. How will you cover the hundreds of papers sure to come out in the next few months? (Economics does not demand review only up to the date the working paper is first posted.)

For example,  my last post could well become a paper. It needs a lot of work — refining the model, exploring economic costs and benefits, modeling the externality or heterogeneity helps, (surely yes), comparing it with data, and so forth. But should I put in that work, at least a month off of doing everything else, and then a further two to three months of revisions, submissions, resubmissions, and so forth for a period of years? No thank you.

My model, like most of these papers, is not a deep methodological improvement. It is a where-are-we-now paper, and a quantified attempt to peer through the mist of the next few months. Where-are-we-now papers are useful! They are 99% of academic research really. If there was a chance of publishing it the way scientists do, I might well do so. But submit it in July and still be waiting in May 2021 to hear a first review? Face a good bet that the editor thinks this is interesting economic history, but not a methodological or factual development of enduring interest? No thanks.

This is not news. There is a lot of soul-searching going on in our journals about how to become more relevant. Economics articles are quantitative essays more than scientific reports, so they often need a bit more digestion. Peer review itself is imperfect — there is lots of nitpicking but often basic mistakes go unnoticed. (I’ve long been a fan of open reviewing to broaden the base of input on papers. Often a conference discussant or other reader will know a lot about a paper, but the journal editor and selected referees don’t know about it. Universally, editors ask for new referees thus wasting the efforts of the often dozens of people who have reviewed the paper before. The idea is going nowhere.) Economists believe in markets, but not for papers. Why do we not figure out a market for submissions so that papers can get better matched to journals to start with, rather than one by one embark on a 6 month process and move from rejection to rejection. Why not simultaneous submissions?

But the I hope the model of the scientists inspires our journal editors to action.

https://voxeu.org/content/covid-and-economics-publishing