The US presidential election season in upon us, and of course religion will again be a major factor. While this is rather unique in the Western world that the religion of a candidate would matter, this fact seems very natural to Americans. The basic logic is that a god-fearing politician is less likely to abuse his power, especially in the position of president, where he cannot vie for a better position through exemplary behavior. That seems to be a slam-dunk for religious candidates, yet experience from the rest of the Western world seems to contradict this. In fact in many other countries, overtly religious candidates are suspected of having allegiances primarily with the religion, not the country.
Pavel Ciaian, Jan Pokrivcak and d'Artis Kancs go one step further and try to compare developed economies, that generally rely on secular institutions to enforce laws and rules, to developing economies, that more frequently draw on informal institutions, in particular religious ones. They find that religion-based institutions are weaker because thy hinge on credibility which is difficult to build and easily lost. Secular ones have an explicit and formal legal enforcement mechanism that can also adapt to changing circumstances. The latter means also that religious enforcement systems are best for static societies, while dynamic and growing economies should adopt secular systems. I am not quite sure causality goes this way, but correlations certainly support this.
Recessions are costly
Robert Lucas has pushed the idea that business cycles are not that costly that they would need intervention, and the real business cycle literature, at least the early one, has anyway advocated that the government should stay out of this kind of business. It is true that long term growth and understanding why some countries are so poor are more important questions, yet one cannot shake the feeling that recessions are costly. The recent one is more severe than usual and can highlight how its costs can be high, and those costs may persist for some time if the much longer than usual unemployment durations translate into significant losses in human capital and ultimately wages.
Steve Davis and Till von Wachter provide some new evidence of a somewhat different kind. Studying US workers displaced in mass-layoffs, they calculate the present value of a job loss in terms of pre-loss wage years. When the unemployment rate is below 6 percent, the loss is of 1.4 years. Above six percent, as is typical in a recession, the loss is 2.8 years, i.e., much much more than the increase in unemployment duration. One can only imagine that these numbers are going to be much worse for the last recession. And keep in mind that these higher numbers apply to more people in a recession. And it matters in aggregate: if the unemployment rate goes from 5 to 10%, it means 5% of the population loses 1.4 additional years of wages. That is 0.7% of national labor income, or 0.5% of GDP. Not peanuts, and I have not even factored in anything about curvature in utility.
Steve Davis and Till von Wachter provide some new evidence of a somewhat different kind. Studying US workers displaced in mass-layoffs, they calculate the present value of a job loss in terms of pre-loss wage years. When the unemployment rate is below 6 percent, the loss is of 1.4 years. Above six percent, as is typical in a recession, the loss is 2.8 years, i.e., much much more than the increase in unemployment duration. One can only imagine that these numbers are going to be much worse for the last recession. And keep in mind that these higher numbers apply to more people in a recession. And it matters in aggregate: if the unemployment rate goes from 5 to 10%, it means 5% of the population loses 1.4 additional years of wages. That is 0.7% of national labor income, or 0.5% of GDP. Not peanuts, and I have not even factored in anything about curvature in utility.
Why the young demand more social insurance than older generations
Take up rates for various social insurance schemes generally increase from generation to generation, even when their is no change to the rules. That must be either because new generations are more feeble and, say, tend to become more frequently or earlier handicapped, or that they have a higher demand for social insurance benefits, say, because they are feeling more entitled (one can have different interpretations).
Martin Ljunge build a model where younger generations are influenced by what older generations did in the following way: Deciding whether to apply for benefits depends on a "psychic cost" that depends on the take up rate of the previous cohort. The model is the estimated using individual data from the sick leave program in Sweden (I think, this is never explicitly mentioned). It is found that, indeed, having parents taking advantage of social benefits lowers the cost on one doing so oneself. This effect makes up half of the long term increase in the take up rate.
Martin Ljunge build a model where younger generations are influenced by what older generations did in the following way: Deciding whether to apply for benefits depends on a "psychic cost" that depends on the take up rate of the previous cohort. The model is the estimated using individual data from the sick leave program in Sweden (I think, this is never explicitly mentioned). It is found that, indeed, having parents taking advantage of social benefits lowers the cost on one doing so oneself. This effect makes up half of the long term increase in the take up rate.
Precaution versus prudence
Why do people accumulate precautionary savings. Conventional wisdom tells us this happens because people face some shocks to income and they are averse to risk and prudent. Now, we need to be careful here. Risk aversion means that one does not like fluctuations in utility (say, from consumption). Prudence means that one dislikes bad outcomes. Hence they do not mean exactly the same thing, and one could conceive precautionary savings without prudence.
Agustín Roitman shows an example where this works. To do this, he uses a new class of preferences that allows to distinguish clearly risk-aversion and prudence: act - bct3 (it may not be easily visible, this is linear consumption less cubed consumption with some coefficients). It has a relative coefficient of prudence of -1 (ratio of third to second derivative), which is constant and independent of risk aversion. The negative value also means this economic agent is imprudent. As Roitman shows, this agent will still accumulate precautionary savings, hence prudence is not necessary. And except for these assumptions on the utility function, the results holds quite generally.
Agustín Roitman shows an example where this works. To do this, he uses a new class of preferences that allows to distinguish clearly risk-aversion and prudence: act - bct3 (it may not be easily visible, this is linear consumption less cubed consumption with some coefficients). It has a relative coefficient of prudence of -1 (ratio of third to second derivative), which is constant and independent of risk aversion. The negative value also means this economic agent is imprudent. As Roitman shows, this agent will still accumulate precautionary savings, hence prudence is not necessary. And except for these assumptions on the utility function, the results holds quite generally.
Malthus visits Rwanda
Rwanda has always struck me as the perfect example of a Malthusian economy. A dense population where land is systematically divided up among descendants, leading to tiny lots that are barely sufficient for survival.Lots are so small that new capital for its exploitation is not relevant, and no technological improvements have any significant bite. In the end the land can only support a population at the edge of famine.
Marijke Verpoorten brings an intriguing connection between the Malthusian theory as applied to Rwanda and the genocide of 1994. Using regional data, she finds that the areas where there was the most urgent population pressure (through density or growth) were also the ones with the most killings. In a way, society was taking care of a business nature and famine could have.
Marijke Verpoorten brings an intriguing connection between the Malthusian theory as applied to Rwanda and the genocide of 1994. Using regional data, she finds that the areas where there was the most urgent population pressure (through density or growth) were also the ones with the most killings. In a way, society was taking care of a business nature and famine could have.
On the mobility of academics in Europe
Europe has suffered a brain drain of top academic scientists that it has tried to reverse by offering better work conditions. The main competitor in the United States, where top scientists are able to attract easy funding and universities are accommodating. While pertains to relatively few people, they are considered to be key, as their reputation can attract better colleagues and graduate students, ultimately improving the rankings administrators vie for. Given the large amounts of money spent by the European Commission and its country counterparts, it is important to understand what motivates scientists to move.
Edward Bergman does this using a survey of 1800 European academics considered to be among in the top institutions. Those who exhibit higher levels of loyalty or "voice" (opinionated on local affairs) tend to stay and try to improve things internally , if necessary. The others prefer to leave when local conditions worsen, and then they have no particular loyalty to stay in Europe when they are just looking for better working conditions. All this is not too surprising. What I find more interesting is that scientists top priority is research opportunities followed by salary, and language preferences is very minor. European universities cannot count on scientists coming home any more.
Edward Bergman does this using a survey of 1800 European academics considered to be among in the top institutions. Those who exhibit higher levels of loyalty or "voice" (opinionated on local affairs) tend to stay and try to improve things internally , if necessary. The others prefer to leave when local conditions worsen, and then they have no particular loyalty to stay in Europe when they are just looking for better working conditions. All this is not too surprising. What I find more interesting is that scientists top priority is research opportunities followed by salary, and language preferences is very minor. European universities cannot count on scientists coming home any more.
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