The Unassuming Economist

The outbreak of the novel Coronavirus, or COVID-19, has exacerbated economic and social inequalities. Several studies have tried to capture the impact of the same using extensive qualitative and quantitative data, spanning diverse categories like economic backgrounds, geographical regions, sex, caste, color, and other such social identities, inter alia.

The NBER paper, Inequality in the Times of a Pandemic (2022), by Stefanie Stantcheva, maps findings “related to inequalities across the income distribution, sectors and regions, gender, and inequalities in education inputs for children from different socioeconomic backgrounds”.

On similar lines but delving deeper on the issue of income inequalities, the paper, Epidemics, pandemics and income inequality (2022) in Health Economics Review attempts to understand how the outbreak of diseases like the Coronavirus, Ebola, Avian flu, etc., have impacted income distributions in the first two decades of the 21st century. The paper develops a model that indicates a positive association between these health crises and income inequality. To empirically test theoretical predictions, it explores the effect on the Gini coefficient of a dummy variable that indicates the occurrence of an epidemic or a pandemic in a country in a given year and the number of deaths per 100,000. To properly address potential endogeneity, the authors implement a Three-Stage-Least Squares technique. The estimation shows that the number of deaths per 100,000 population variable has a statistically significant positive effect on the Gini coefficient, especially when COVID-19 data is included.

Building upon their earlier work on the same topic, economists Monica Langella and Alan Manning of the Centre for Economic Performance, London School of Economics, further assess spatial differences and trends in internal migration to understand unemployment adjustment in the United Kingdom.

Abstract– “This paper uses UK census data to investigate how unemployment affects residential mobility using small areas as potential destinations and origins and four decades of data. It finds that both in- and out-migration are affected by local unemployment – but also that there is a very high ‘cost of distance’, so most moves are very local. We complement the study with individual longitudinal data to analyse individual heterogeneities in mobility. We show that elasticities to local unemployment are different across people with different characteristics. For instance, people who are better educated are more sensitive, the same applies to homeowners. Ethnic minorities are on average less sensitive to local unemployment rates and tend to end up in higher unemployment areas when moving.”

The paper offers comprehensive coverage of contrasting evidence, which on one hand shows that theoretically migration from economically depressed to booming areas must tackle unemployment, but on the other makes one question if this principle still holds owing to empirical results found from studies conducted in the US labor market (M. Dao, D. Furceri, P. Loungani, 2017). It proceeds to offer reasons to support the claim that migration response to economic booms has been observed to slow down on several instances, and reconciles the diverse range of evidence available from experiences of different countries.

Click here to read the full paper.

From a new IMF Working Paper (2022) by Katharina Bergant, Miss Anke Weber, and Andrea Medici.

Summary:

“Using micro-data from household expenditure surveys, we document the evolution of consumption poverty in the United States over the last four decades. Employing a price index that appears appropriate for low-income households, we show that poverty has not declined materially since the 1980s and even increased for the young. We then analyze which social and economic factors help explain the extent of poverty in the U.S. using probit, tobit, and machine learning techniques. Our results are threefold. First, we identify the poor as more likely to be minorities, without a college education, never married, and living in the Midwest. Second, the importance of some factors, such as race and ethnicity, for determining poverty has declined over the last decades but they remain significant. Third, we find that social and economic factors can only partially capture the likelihood of being poor, pointing to the possibility that random factors (“bad luck”) could play a significant role.”

Source: United Nations Department of Economic and Social Affairs

“Global economic recovery hinges on a delicate balance amid new waves of COVID-19 infections, persistent labour market challenges, lingering supply-chain constraints and rising inflationary pressures”, reads the recently released report by the UN. The world economy is projected to grow by 4 percent in 2022 and 3.5 percent in 2023. Some excerpts from the report are as presented underneath:

The good: Half of the world’s economies will exceed pre-pandemic levels of output by at least 7 percent in 2023. In East Asia and South Asia, the average gross domestic product (GDP) in 2023 is projected to be 18.4 percent above its 2019 level, compared to only 3.4 percent in Latin America and the Caribbean. Besides, global investment expanded by an estimated 7.5 percent in 2021 (after contracting by 2.7 percent in 2020) driven by growth in China and the United States. As regards poverty, the number of people living in extreme poverty globally is projected to decrease slightly to 876 million in 2022 but is expected to remain well above pre-pandemic levels. Fast-developing economies in East Asia and South Asia and developed economies are expected to experience some poverty reduction.

The not so good: Despite a robust recovery, East Asia and South Asia’s GDP in 2023 is projected to remain 1.7 percent below the levels forecast prior to the pandemic, while these figures stand at 5.5 and 4.2 percent for Africa, and Latin America and the Caribbean, respectively. Labour markets have contracted severely, and full recovery in developed economies is only projected to happen by 2023 or 2024.

The risks: Limited access to vaccines poses a particular challenge to most developing countries and transition economies. Rising inflationary pressures in major developed economies and a number of large developing countries present additional risks to recovery. Global headline inflation rose to an estimated 5.2 percent in 2021, more than 2 percentage points above its trend rate in the past 10 years. The inflationary pressure was particularly pronounced in the United States, the euro area and Latin America and the Caribbean. Higher levels of inequality within and between countries, and against vulnerable populations like women, is one of the greatest risks to the social fabric as suggested by the report.

Read the full report for in-depth forecasts on issues like the state of multilateralism, asset price bubbles, monetary policy, healthcare crises, and climate change.

Also Read:

World Bank’s Global Economic Prospects 2022 Report

Source: VoxEU

“After a century of stability, the labour share of national income began to decline around 2000 in the US and many other countries. This column reviews the growing literature examining the potential reasons for the decline of the labour share, which include (1) capital-biased technical change, (2) globalisation and the rise of China, (3) increasing industry concentration and market power, (4) unionisation, and (5) population growth. The column also discusses pitfalls associated with common empirical strategies in the literature and suggests that more work is needed to understand fundamental, rather than proximate, causes of the decline.“

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Is Something Different this Time about the Effect of Technology on Labor Markets (2019)