Unemployment Shocks Research Articles

Public health events and economic growth in a neoclassical framework

Public health events (PHEs) have emerged as significant threats to human life, health, and economic growth. PHEs, such as COVID-19, have prompted a reevaluation for enhanced regular prevention and control (RPC). In this study, we focus on the core concept of prevention and control intensity (PCI), and establish a neoclassical economic growth model from the long-term and macro perspective to balance life protection and economic growth. The model construct the mechanism of PCI on economic growth through population dynamics and capital accumulation under the backdrop of RPC for PHEs. We find the conditions for PCI when the economy achieves steady state, and provides an algorithm establishing the optimal strategy that maximises per capita disposable income based on the optimal PCI and consumption. Simulation result quantifies an inverted U-shaped relationship between PCI and capital per capita, output per capita and consumption per capita in the steady state. The model suggests that, given the PHEs of inducing potential unemployment shock, it is worthwhile to combine the implementation of moderate PCI with coordinated policies of income distribution.

Job Loss and Household Labor Supply Adjustments in Developing Countries: Evidence from Argentina

Abstract Using longitudinal data for Argentina, this paper estimates the labor supply reaction of spouses and children, as well as the interactions between them, following the job loss of their husband or father. The findings show that job loss by the household head has a positive and significant impact on the labor supply of other household members. However, it increases the likelihood of spouses to switch to informal and downgraded employment, and of children to drop out from education. While effects are stronger among vulnerable households, coverage of social security does not provide enough support in coping with unemployment shocks. Mothers’ labor participation, however, may allow their daughters to continue their education.

The Effect of U.S. Unemployment Shocks on Crime in Mexico

The Effect of U.S. Unemployment Shocks on Crime in Mexico

Dynamics of Macroeconomy, Medicaid, and State Fiscal Conditions: A Role of Medicaid Expansion.

One of the main concerns of state governments about Medicaid expansion is the potential increase in state fiscal burden following the rise in enrollments. In previous literature, limited attention has been paid to the effect of macroeconomic changes, which are closely linked to Medicaid enrollments, in understanding the impact of Medicaid expansion on a state. To narrow the gap, this study establishes a synthetic model to represent the transmission channel from an unemployment shock to the Medicaid program and state expenditures. The panel vector autoregression (VAR) model is adopted for the empirical analysis using annual data from 2010 to 2019 for 50 US states and D.C. The unit root and Granger causality tests are conducted to check the model's appropriateness. The estimated results are analyzed by using impulse response functions. A sudden increase in the unemployment rate will raise the number of Medicaid enrollees and the state Medicaid expenditure, but the impact on the overall state budget is not clear. States that adopt Medicaid expansion will encounter surges in enrollment and increasing Medicaid expenditure during the economic recession, while the non-expansion states will only have moderate enrollment increases. However, an increased budgetary burden per new enrollees will not be significant at its level. Medicaid expansion will allow more people to benefit from the public health insurance program during an economic recession while the impact on states' fiscal burden will be moderate.

Health financing: the impact of shocks and its role in health system resilience

Abstract Introduction Health financing plays a vital role in the performance of the health system. Shocks can have a major impact on health financing but health financing can also protect aspects of the health system during shocks. Understanding the health financing function, how different types of shocks - including pandemics and the current cost-of-living crisis -- affect health financing, and how health financing can be resilient in the presence of shocks is of utmost importance Methods A framework for understanding health financing and how a shock can affect health financing was developed by the European Observatory on Health Systems and Policies. Health financing is broken down into revenue raising, pooling, purchasing and the governance of health financing, referred to as sub-functions of health financing. We use this framework to explore country examples in an effort to identify the ways in which health financing systems are resilient to different types of shocks. Findings There a range of examples demonstrating resilience to shocks across the sub-functions of health financing. First, there are counter-cyclical financing mechanisms where the revenues allocated to health are automatically adjusted to compensate for unemployment shocks (e.g. Lithuania). Second, there are purchasing practices that ensure resources are allocated appropriately within the health system when there are significant changes in utilization patterns, (e.g. Belgium during COVID-19). Third, automatic adjustment of prices occurs, paid by the health system to compensate for inflationary pressures. Fourth,good practices in the governance of health financing involve adjusted coverage policies to improve access to services when households were under severe financial strain (e.g. Ireland). Conclusions There are many different ways to ensure that health financing is resilient to shocks. Policymakers must consider the role of their health financing systems when developing preparedness plans.

Analysis of South Korea's Macroeconomic Development with the Vector Error Correction Model

This study examines the relationship between Gross Domestic Product (GDP), Import (IMP), Inflation (INF), and Unemployment (UNP) in South Korea using the panel vector error correction model (VECM), cointegration, and Granger. VECM is used to analyze the relationship or causality between variables involved in this research in the short and long run. From the estimation results, especially on the variables of interest, there is a positive and statistically significant relationship between Gross Domestic Product, Import, Inflation, and Unemployment, which refers more to short-term causality. Impulse Response Function analysis is used to determine the impact between variables where the results that had a positive effect during the Covid-19 pandemic were import shocks to GDP and unemployment shocks to GDP, while those that had a negative impact were inflation rate shocks to GDP in South Korea during the Covid-19 pandemic.

COVID-19 and labour market resilience: evidence from large-scale recruitment behaviour

ABSTRACT We construct a theoretical model to interpret the structural shock from the COVID-19 pandemic and the response of local labour market and industry specialization. The empirical study takes the large-scale online labour market of China to analyse firms’ hiring demand for 20 industries across 380 cities with monthly recruitment data from May 2017 to September 2020. Post-event quantitative analysis on job postings and employer demand highlighted that the pandemic resulted in an unemployment shock and industry- and city-level redistribution of the worker. China’s local job market resilience also revealed a regional imbalance, correlated with pandemic risk, city scale and industry structure.

Resilience in the Open Source Software Community: How Pandemic and Unemployment Shocks Influence Contributions to Others’ and One’s Own Projects

Contributions by individual open source software (OSS) community members are the lifeblood of the OSS projects that power today’s digital economy and are important for the very survival of such communities. Individual contributions by OSS community members to others’ projects and their own determine whether OSS communities are resilient in the face of major shocks. Arguably, if crises such as the COVID-19 pandemic prompt users to reduce their contributions to others’ projects relative to the contributions to their own projects, such behavior can have implications for the overall resilience of the OSS community. Therefore, whether and how individuals change their contributions in the face of a crisis is an important question. We examine whether members in an OSS community increased or decreased their contributions to others’ projects relative to their own in the face of the COVID-19 pandemic, a sudden and unexpected global health-related shock that has affected almost everyone. We also compare and contrast this behavior when the OSS community faced increasing unemployment, an economic cyclic shock that is arguably and relatively more personal. Drawing on the concept of prosocial behavior and conservation of resources (COR) theory, we hypothesize that the pandemic increased OSS community members’ contributions to others’ projects relative to their own; on the other hand, the threat of rising unemployment decreased OSS community members’ contributions to others’ projects relative to their own. Our empirical analyses of a longitudinal dataset of over 18,000 OSS community members on GitHub, with more than 1.4 million member-day observations, support our hypotheses. This study contributes by uncovering the differential effects of exogenous health-related and economic shocks on the resilience of the OSS community. We conclude with a discussion of our findings’ implications for OSS community resilience.

Population Adjustment to Asymmetric Labour Market Shocks in India: A Comparison to Europe and the United States at Two Different Regional Levels

This paper uses Indian EUS-NSSO data on 32 states/union territories and 570 districts for a bi-annual panel with 5 waves to estimate how regional population reacts to asymmetric shocks. These shocks are measured by non-employment rates, unemployment rates, and wages in fixed-effects regressions which effectively use changes in these indicators over time within regions as identifying information. Because we include region and time effects, we interpret regression-adjusted population changes as proxies for regional migration. Comparing the results with those for the United States (US) and the European Union (EU), the most striking difference is that, in India, we do not find any significant reactions to asymmetric non-employment shocks at the state level, only at the district level, whereas the estimates are statistically significant and of similar size for the state/NUTS-1 (Classification of Territorial Units for Statistics (NUTS, the French abbreviation for "nomenclature d’unités territoriales 21 statistiques")) and district level in both the US and Europe. We find that Indian workers react to asymmetric regional shocks by adjusting up to a third of a regional non-employment shock through migration within 2 years. This is somewhat higher than the response to non-employment shocks in the US and the EU but somewhat lower than the response to unemployment shocks in these economies. In India, the unemployment rate does not seem to be a reliable measure of regional shocks, at least we find no significant effects for it. However, we find a significant population response to regional wage differentials in India at both the state and district level.

Job displacement and the mental health of households: Burden sharing counteracts spillover

In this paper, I investigate the mental health effects of job displacement in 1-adult and 2-adult households. In a 1-adult household, if a worker loses a job unexpectedly, significant mental health deterioration can become manifest. In a 2-adult household, the deterioration may be less severe for the displaced worker due to burden and risk sharing with the partner. However, in this 2-adult household, there exists the additional risk of the partner’s unemployment, which could be detrimental to the worker’s mental health. I compare the overall burden in 1- and 2-adult households and find no statistically significant difference. This follows because the distress associated with the partner’s displacement is offset by the lower distress upon own displacement. Regarding gender differences, I show that job displacement upsets male and female workers for different reasons and to different extents depending on partnership status. These results offer fresh insights into unemployment shocks, the crucial role of partner support, and how the gender gap in mental health can be linked to household structure.

Bad News, Good News: Coverage and Response Asymmetries

We study the dynamic link between economic news coverage and the macroeconomy. We construct two measures of media coverage of bad and good unemployment figures based on three major US newspapers. Using nonlinear time series techniques, we document three facts: (i) there is no signifi cant negativity bias in economic news coverage. The asymmetric responsiveness of newspapers' coverage to positive and negative unemployment shocks is entirely explained by the effects of these shocks on unemployment itself; (ii) consumption reacts to bad news, but not to good news; (iii) bad news is more informative to the agents and affects their expectations more than good news.

Stuck at home: Housing demand during the COVID-19 pandemic

The COVID-19 pandemic induced an increase in both the amount of time that households spend at home and the share of expenditures allocated to at-home consumption. These changes coincided with a period of rapidly rising house prices. We interpret these facts as the result of stay-at-home shocks that increase demand for goods consumed at home as well as the homes that those goods are consumed in. We first test the hypothesis empirically using US cross-county panel data and instrumental variables regressions. We find that counties where households spent more time at home experienced faster increases in house prices. We then study various pandemic shocks using a heterogeneous agent model with general equilibrium in housing markets. Stay-at-home shocks explain around half of the increase in model house prices in 2020. Lower mortgage rates explain around one third of the price rise, while unemployment shocks and fiscal stimulus have relatively small effects on house prices. We find that young households and first-time home buyers account for much of the increase in housing demand during the pandemic, but they are largely crowded out of the housing market by the equilibrium rise in house prices.

Late-career unemployment shocks, pension outcomes and unemployment insurance

In response to unemployment shocks, older workers deplete their 401(k)s, particularly after the waiving of the early withdrawal penalty on unemployment-motivated withdrawals at age 55. This paper shows that unemployment insurance keeps older workers from depleting their 401(k) assets following job losses. Unemployment insurance also incentivizes older unemployed workers to delay claiming their Social Security benefits beyond the earliest age of eligibility, 62. Overall, unemployment insurance enhances the retirement income of the individuals having a history of late-career layoffs by helping them preserve their 401(k) assets, maintain the return on these assets and opt for a higher stream of Social Security benefits.

The long-term impact of the COVID-19 unemployment shock on life expectancy and mortality rates

We adopt a time series approach to investigate the historical relation between unemployment, life expectancy, and mortality rates. We fit Vector-autoregressions for the overall US population and for groups identified based on gender and race. We use our results to assess the long-run effects of the COVID-19 economic recession on mortality and life expectancy. We estimate the size of the COVID-19-related unemployment shock to be between 2 and 5 times larger than the typical unemployment shock, depending on race and gender, resulting in a significant increase in mortality rates and drop in life expectancy. We also predict that the shock will disproportionately affect African-Americans and women, over a short horizon, while the effects for white men will unfold over longer horizons. These figures translate in more than 0.8 million additional deaths over the next 15 years.

Unemployment shocks and material deprivation in the European Union: A synthetic control approach

This paper analyzes how material deprivation responds to drastic changes in unemployment levels. We explore unemployment shocks registered in some European Union countries during the so-called Great Recession. To do so, we apply the synthetic control methodology, which has been rarely used in the field of distributive analyses. We use this approach to identify the impact of unemployment shocks on material deprivation and conduct different sensitivity analyses to test the results. We find that contrary to the traditional assumption of the low sensitivity of material deprivation measures to changes in the economic cycle, unemployment shocks have a significant and rapid impact on material deprivation. This conclusion holds even when extending the period of analysis, changing the indicator of material deprivation, or modifying the definition of unemployment shock.

Persistent Monetary Policy in a Model with Labor Market Frictions

In a basic New Keynesian DSGE model with involuntary unemployment and inflation target shocks, we study the role of labor markets in the transmission of persistent monetary policy shocks that increase households' inflation expectations. The model predicts that labor market conditions can play an important role in the transmission channel of the persistent inflation target shock: quantitatively realistic labor market frictions increase the expansionary effect of inflation target shock on output by around a half compared to that under the model without labor market frictions. Using VAR analysis, we further provide empirical evidence consistent with the predictions of our theoretical model.

Inflation Targeting and Economic Performance: Application of the New Keynesian Small Open Economy DSGE

Bank Al-Maghrib aim to adopt the inflation targeting regime to keep pace with changes in the monetary policy environment. The challenge for the central bank is to meet the prerequisites of inflation targeting to ensure the anchoring of expectations, and thus achieve the inflation target and real stability.
 The objective of this paper is to propose an optimal model for Morocco's successful transition to inflation targeting.
 To do so, we build a New Keynesian Small Open Economy DSGE model, characterized by financial frictions, imperfect exchange rate pass-through, unemployment, fiscal rule and new shocks. The results of our simulations lead us to assert that it would be wise to choose the most complete model, since it provides credibility, stability and growth.
 Keywords: anchoring expectations, inflation targeting, economic growth, DSGE, financial frictions.

The added-worker effect in the Netherlands before and during the Great Recession.

We study the added-worker effect in the Netherlands with large-scale administrative panel data for the period 1999–2015. Conditioning on samples with similar employment histories, we employ differences-in-differences to estimate the effect of a male partner’s unemployment shock on the female partner’s income. We find a modest added-worker effect of 2–5% of the male partner’s income loss, as compared to the much larger compensating effect from social insurance schemes. The added-worker effect largely disappeared at the beginning of the Great Recession, but resurfaced a few years later. Over the years, profits from self-employment have become more important in dealing with unemployment shocks.

Betrayed by the Elites: How Corruption Amplifies the Political Effects of Recessions

We investigate whether corruption amplifies the political effects of economic crises. Using Spanish municipal-level data and a difference-in-difference strategy, we find that local unemployment shocks experienced during the Great Recession (2008–2015) increased political fragmentation. This effect was four times larger in municipalities exposed to malfeasance than in municipalities without a history of political corruption. We bolster this evidence by showing that, conditional on province and population strata fixed effects, there is no evidence of differential pre-trends. We also find that the interaction of unemployment and corruption harms the two traditional main parties and benefits especially the new party on the left ( Podemos).

The Economic Consequences of Banking Crises: The Role of Central Banks and Optimal Independence

A large literature establishes the benefits of central bank independence, yet very few have shown directly negative economic consequences. Furthermore, while prevailing monetary theory suggests CBI should enhance management of economic distress, I argue that independent central banks exhibit tepid responsiveness to banking instability due to a myopic focus on inflation. I show that banking crises produce larger unemployment shocks and credit and stock market contractions when the level of central bank independence is high. Further, I show that these significant economic costs are mitigated when central banks do not have the inflation-centric policy mandates predominantly considered necessary. When the bank has high operational and political independence, banks’ whose policy mandate does not rigidly prioritize inflation produce significantly better outcomes during banking crises. At the same time, I show that this configuration does not produce higher inflation, suggesting it achieves a more flexible design without incurring significant costs.