The composition of growth matters for poverty alleviation

This paper contributes to explain the cross-country heterogeneity of the poverty response to changes in economic growth. It does so by focusing on the structure of output growth itself. The paper presents a two-sector theoretical model that clarifies the mechanism through which the sectoral composition of growth and associated labor intensity can affect workers' wages and, thus, poverty alleviation. Then, it presents cross-country empirical evidence that analyzes, first, the differential poverty-reducing impact of sectoral growth at various levels of disaggregation, and, second, the role of unskilled labor intensity in such differential impact. The paper finds evidence that not only the size of economic growth but also its composition matters for poverty alleviation, with the largest contributions from unskilled labor-intensive sectors (agriculture, construction, and manufacturing). The results are robust to the influence of outliers, endogeneity concerns, alternative explanations, and various poverty measures.     

Women business owners: a source of stability during the great recession?

During the period of the Great Recession, previous research has found that women-owned firms were less likely to lay-off workers than were firms owned by men. Given that the individual firm behaviour has a cumulative effect on regional economic performance, we expect greater stability across those regions with a larger share of women-owned and managed businesses. We test this hypothesis using US county data during the period from 2007 to 2013 at the US county level. Consistent with the findings of Matsa and Miller, our results suggest that regional economic stability increases with the share of women-owned and managed establishments.     

Is foreign trade important for regional growth? Empirical evidence from Portugal

The aim of this study is to investigate whether openness, export shares or trade balances affect regional growth in Portugal. Human capital is also considered as a conditional factor to growth, expressed by the rate of success in high school education. Thus, we analyse whether the combination of international trade and human capital is relevant to explain regional growth in Portugal and how it affects the convergence process between regions. In the empirical analysis, interaction terms are introduced to explore the existence of different performances between regions of the Littoral and the Interior. As an alternative to the traditional approach that considers the population growth rate, we include the share of sectoral employment aiming to capture labour specialisation in the main sectors of economic activity and measure its impact on regional growth.The empirical analysis estimates the conditional convergence model of the Barro's type, applied to the Portuguese NUTS3 regions for the period 1996-2005. The GMM estimation approach applied to regional panel data reveals that factors associated with external trade, human capital and sectoral labour share (especially of the industrial sector) are relevant to explain regional growth and convergence in Portugal.     

The Great Recession and Racial Inequality: Evidence from Measures of Economic Well-Being

Abstract:

The Great Recession had a tremendous impact on low-income Americans, in particular Black and Latino Americans. The losses in terms of employment and earnings are matched only by the losses in terms of real wealth. In many ways, however, these losses are merely a continuation of trends that have been unfolding for more than two decades. We examine the changes in overall economic well-being and inequality, as well as changes in racial economic inequality during and since the Great Recession. We find that the Levy Institute Measure of Economic Well-Being inequality between White and Black households decreased during the Great Recession but since 2010, racial inequality in terms of LIMEW has increased. We find that changes in base income, taxes, and income from non-home wealth during the Great Recession produced declines in overall inequality, while only taxes reduced between-group racial inequality.     

International Integration,Trade, and the Great Recession

In the wake of the Great Recession, almost all countries suffered a severe and synchronized trade collapse unlike any seen since the Great Depression. To the extent that economic integration fosters trade among countries, this paper examines the role that international integration played in moderating the negative shock caused by the Great Recession on trade. The methodology adopted is a modified gravity model in which we control for the Great Recession, different forms of integration, as well as the interaction between integration and the recession. Measuring integration in three different ways, the findings show that countries that were more integrated fared better in trade – the extent of trade collapse was milder – than less integrated countries. Specifically, Regional Trade Agreement, as a form of trade integration, had a positive and robust effect on trade during the Great Recession. This positive effect is also robust across regions and countries around the world. In a nutshell, countries that are into some form of trade agreements are better-positioned to absorb negative demand-side shocks caused by economic recessions than similar countries without such agreements.     

Trend-cycle decomposition allowing for multiple smooth structural changes in the trend of US real GDP

A key feature of Flexible Fourier Form (FFF) is that the essential characteristics of multiple structural changes can be captured using a small number of low frequency components from a Fourier approximation. We introduce a variant of the FFF into the trend function of US real GDP in order to allow for gradual effects of unknown numbers of structural changes occurring at unknown dates. We find that the hypothesis of no changes can be rejected, and the Fourier components are significant. Our new cycle matches the NBER chronology very well, especially for the Great Recession of 2009.     

Economic uncertainty in South Africa

The idea that heightened uncertainty among firms contributed to the Great Recession and the lacklustre subsequent recovery has inspired a substantial literature examining the impact of changes in uncertainty on output and investment decisions. Yet to date there has been little research on business uncertainty in emerging markets. This paper is one of the first to develop a set of survey-based proxies for business uncertainty for an emerging market, South Africa, based on micro-data from business tendency surveys. These survey-based proxies are combined with more common measures of uncertainty, based on financial data and text mining, to obtain a composite measure of economic uncertainty. The paper then examines whether the uncertainty indicators have plausible and significant relationships with real economic activity, even after controlling for other economic variables. The indicators exhibit a significant negative correlation with real GDP growth, consistent with the findings for developed countries, and a positive shock to uncertainty is generally followed by a significant decrease in real activity growth.     

Unemployment persistence in OECD countries after the Great Recession

The 2008 economic downturn in the United States resulted in a wave of contractionary effects across many OECD countries. This paper investigates the pattern of the unemployment persistence in the United States and other 28 OECD countries before and after the Great Recession. To detect possible changes in the pattern of unemployment persistence, we employ a mean bias-corrected estimation of the persistence parameter with a rolling window of five years. In addition, we estimate the most likely date of change in the trend function of unemployment to test whether there was any significant change in the pattern of unemployment persistence after the Great Recession. We find significant evidence of a structural break and hysteresis in unemployment rates, with a persistence parameter close to unity, across the United States and other 28 OECD countries. Besides, bootstrap permutation tests show that all half-lives and impulse response functions have significantly changed after the Great Recession. Therefore, our findings call for structural reforms aimed at improving labor market performance, to prevent upward shifts in unemployment across OECD countries from becoming permanent.     

The gender difference in wages and the returns to schooling over the great recession in the U.S.

This paper examines the effects of the Great Recession on the gender difference in hourly wage and the rate of return to schooling in the United States. Using data from American Community Survey 2000–2015, we find that the male-female difference in hourly wage declined during and after the recession. The Great Recession decreased earnings for both men and women, especially for those with more education. We also find there is a significant gender difference in the effects of the Great Recession on the returns to schooling. The Great Recession increased the rate of return to schooling for both men and women, and the female-male difference in the returns to schooling decreased by 0.4 percentage points in the post-recession period. The change of the gender difference in the returns to schooling can be explained by the wage structure change for men and women over the recession.     

Potential output and inflation dynamics after the Great Recession

Ever since the end of the Great Recession, the US economy has experienced a period of mild inflation, which contradicts with the output–inflation relationship depicted by a traditional Phillips curve. This paper examines how the permanent output loss during the Great Recession has affected the ability of the Phillips curve to explain US inflation dynamics. We find great similarity among several established trend–cycle decomposition methods: potential output declined substantially after the Great Recession. Due to the fact that a lower level of potential output implies a lesser deflationary pressure, we then show that the Phillips curve does predict a period of mild inflation. This finding is largely consistent with the observed data.     

Distant but Close in Sight: Firm-level Evidence on French–German Productivity Gaps in Manufacturing

We study productivity-level distributions of manufacturing firms in France and Germany, and how these distributions evolved across the Great Recession. We show the presence of a systematic productivity advantage of German firms over French ones in the decade 2003–2013, but the gap has narrowed down after the Great Recession. Convergence is explained by the better growth performance of French firms in the post-recession period, especially of those located in the top percentiles of the productivity distribution. We also highlight the role of sectoral growth, firm size, and export intensity in explaining the above convergence. In contrast, the contribution of allocative efficiency was small.     

How did the Great Recession Affect Gender Disparity in Europe? An Analysis by a Multidimensional Deprivation Approach

ABSTRACT

This paper analyses how the Great Recession affected the gender disparity in material and social deprivation in Europe. We propose multidimensional non-monetary indexes of absolute and relative (i.e. using peer comparisons) deprivations estimated on data from the European Quality of Life Survey for the waves 2007 and 2011. We find that the Great Recession decreased gender disparity over all the dimensions of deprivations. By applying a Blinder-Oaxaca decomposition, we estimate that this decline of gender gap has depended on a reduction of the difference in characteristics between genders that has more than offset an increase of gender discrimination.     

Predicting US county economic resilience from industry input-output accounts

Resilience is defined as a system’s ability to initially resist and then recover from a shock. Here we apply this concept to examine the performance of U.S. counties during the Great Recession. The response of local economies to manmade and natural shocks is hypothesized to depend on the centrality of local industries within the economy, or how well connected they are to the other industries. We first calculate a centrality value for each industry using the national Input-Output accounts. We then ‘step down’ these values to the county level using industry employment data. We then test empirically whether local economies containing more centralized industries were more resilient, using a resilience measure that compares the local employment rebound and decline during the Great Recession. Our results suggest that measures of economic centrality adopted from the study of complex networks provide new insights when applied to the fields of regional science and spatial analysis, and economic growth more generally.     

Working hard in the wrong place: A mismatch-based explanation to the UK productivity puzzle

The UK experienced an unusually prolonged stagnation in labor productivity in the aftermath of the Great Recession. This paper analyzes the role of sectoral labor misallocation in accounting for this “productivity puzzle”. If jobseekers disproportionately search for jobs in sectors where productivity is relatively low, hires are concentrated in the wrong sectors, and the post-recession recovery in aggregate productivity can be slow. Our calculations suggest that, quantified at the level of three-digit occupations, this mechanism can explain up to two thirds of the deviations from trend-growth in UK labor productivity since 2007.     

The pre-Great Recession slowdown in productivity

In the years since the Great Recession, many observers have highlighted the slow pace of productivity growth around the world. For the United States and Europe, we highlight that this slow pace began prior to the Great Recession. The timing thus suggests that it is important to consider factors other than just the deep crisis itself or policy changes since the crisis. For the United States, at the frontier of knowledge, there was a burst of innovation and reallocation related to the production and use of information technology in the second half of the 1990s and the early 2000s. That burst ran its course prior to the Great Recession. Continental European economies were falling back relative to that frontier at varying rates since the mid-1990s. We provide VAR and panel-data evidence that changes in real interest rates have influenced productivity dynamics in this period. In particular, the sharp decline in real interest rates that took place in Italy and Spain seem to have triggered unfavorable resource reallocations that were large enough to reduce the level of total factor productivity, consistent with recent theories and firm-level evidence.     

Evaluating growth cycle synchronisation in the EU

This paper provides an insight into the level of economic and monetary integration in Europe by analysing the degree of growth cycle synchronisation between seven European countries over the past thirty years. Two univariate trend-cycle decomposition methodologies, the Beveridge–Nelson (BN) decomposition and Harvey and Trimbur [Harvey, A.C. & Trimbur, T.M. (2003) “General Model-Based Filters for Extracting Cycles and Trends in Economic Time Series”, The Review of Economics and Statistics, 85(2), 244–255.]'s unobserved component model, together with a multivariate extension of the BN decomposition incorporating trend and cycle restrictions, are used to identify the trend and cyclical components from real GDP for each of the seven countries. The cycles extracted from the two univariate approaches vary significantly in both cycle period and amplitude. The average correlation calculated from the BN cycles are also smaller than the corresponding correlation estimated using cycles extracted from the unobserved component model. This confirms the argument in Canova [Canova, F. (1998) “Detrending and Business Cycle Facts”, Journal of Monetary Economics, 41(3), 475–512.] that the use of different trend-cycle decomposition methodologies may influence the results obtained. The results produced from the multivariate model indicate the presence of common features in the data. This may reflect the coordinated and common monetary and fiscal policies that these countries have shared over the sample period. However, the finding of codependent and heterogeneous growth cycles raises concerns about the operation of the European Monetary Union (EMU), as it implies that members may face significant stabilisation costs.     

Financial Crisis, “New” Industrial Policy,and the Bite of Multilateral Trade Rules

The recent Great Recession has triggered substantial government intervention – not all of it macroeconomic. This article presents evidence that the sectoral incidence and forms of government intervention appear to have changed from pre-crisis regularities. Once the commercial significance of a sector is taken into account, pre-crisis measures of trade policy intervention poorly predict the crisis-era sectoral incidence of discriminatory state measures imposed by Asian governments. Qualitative evidence focusing on three key countries in Asia – China, Japan, and South Korea – is also marshaled to sustain the contention that Asian governments have used the recent economic crisis to reinvigorate industrial policies, targeting apparent growth poles and apparently environmentally friendly technologies and sectors. Implications for the expansion of World Trade Organization rules and their effectiveness are discussed.     

Real wage cyclicality in the Eurozone before and during the Great Recession: Evidence from micro data

We study the response of real wages to the business cycle in eight major Eurozone countries before and during the Great Recession. Average real wages are found to be acyclical, but this reflects, in large part, the effect of changes in the composition of the labour force related to unemployment variations over the cycle. Using longitudinal micro data from the ECHP and SILC panels to control for composition effects, we estimate the elasticities of real wage growth to unemployment increases between −0.6 and −1 over the period 1994–2011. Composition effects have been particularly large since 2008, and they explain most of the stagnation or increase in the average wage observed in some countries from 2008 to 2011. In contrast, at a constant labour force composition in terms of education and experience, the figures indicate a significant decrease in average wages during the downturn, particularly in countries most affected by the crisis. Overall, there is no evidence of downward nominal wage rigidity during the Great Recession in most countries in our sample.     

UNCERTAINTY AND MONETARY POLICY DURING THE GREAT RECESSION

We employ a nonlinear proxy-VAR approach to document the large response of real activity to a financial uncertainty shock during and in the aftermath of the Great Recession. We replicate this evidence with an estimated DSGE framework that we employ to quantify the output loss due to the large uncertainty shock that materialized in 2008Q4. We find such a shock to be able to explain about 60% of the output loss in the 2008–2014 period. Our model also points to the powerful role played by the Federal Reserve's systematic monetary policy in limiting the loss of output during the Great Recession.     

IMMIGRANT RELATIVE WAGES AT THE GREAT RECESSION: EVIDENCE WITH MATCHED EMPLOYER‐EMPLOYEE DATA FOR SPAIN

The article examines relative wages of immigrants in Spain, with a particular focus on the impact of the Great Recession. The empirical analysis is restricted to men and is based on matched employer‐employee microdata and the decomposition techniques of Juhn et al. (1991, 1993) and Fortin et al. (2011). Our results show that the significant native‐immigrant wage gap that exists both in terms of average wages and of differentials along the wage distribution is essentially explained by differences in the endowments of observed characteristics so that, in general, immigrants tend to receive a similar wage treatment than Spaniards with analogous observed attributes. On the other hand, the Great Recession has had a noticeable impact on the relative wages of immigrants, given that the significant increase of the native‐immigrant wage gap observed during the previous expansionary period was mitigated during the economic downturn due to composition effects arising from the severe employment destruction pattern.