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The COVID19 pandemic is a threat to social mobility, as children in disadvantaged families will face more challenges in adulthood

The COVID19 pandemic will threaten social mobility. I examine four ways in which this is likely to happen in my presentation to the ZEW Seminar on COVID19 and inequality held on June 19th, 2020. This post summarizes the major messages.

Drawing on past research I see four aspects of inequality in the lower part of the income distribution that will be exacerbated and threaten the upward mobility of children raised in challenging circumstances.

But I begin by stressing that the United States has lower social mobility than many other rich countries in part because of a more vicious intergenerational cycle of low income, and this in turn has something important to do with race and a legacy of disadvantage among African-Americans.

The obvious challenge for public policy directed to enhancing equality of opportunity is to address the barriers that divide many from the mainstream, and to promote social inclusion of all.

1. Family is central to social mobility

But more specifically, COVID19 is likely to have exacerbated the challenges of parenting, family stress has likely gone up among some families, and in the extreme abusive relationships are more threatening and harder to leave. Separation and divorce may rise. From the perspective of the adult prospects of children, this will lead to delayed partnership formation, and more unstable relationships, even if it does not impact directly on their earning prospects.

2. Progressive public investment matters and should be supported

Social mobility is promoted by progressive public investment, particularly in health care and schooling. Many have already pointed out that the pandemic has exacerbated differences in schooling outcomes in the short term, as children in lower socio-economic families have gained much less from online learning than their counterparts. This is equivalent to the well documented loss in learning that occurs during summer months as well-to-do families enrich the child’s experiences in ways not available to others.

But in the longer run it will be very important to not cut back, indeed to increase, investment in high quality public schooling. An era of austerity in the aftermath of the 2008 Great Recession led to cuts in public investments that should be avoided this time around.

3. Job loss and income falls echo into the next generation

Finally, if temporary layoffs morph into permanent job loss, and if public income support is inadequate this will imply a long-lasting decline in family income that will have long run consequences for children. The adult earnings of children raised in families where the main breadwinner permanently lost a high seniority job in mid career suffered. The parental income loss echoed into the child’s adulthood, the children experiencing lower income and greater reliance on public income support as adults.

 

For more detail, download my presentation and use the links to useful resources to learn more: “Inequality from the Child’s Perspective: Social mobility in Pandemic Times”

 

The Canada Emergency Response Benefit, what now? Government policy as the economy re-opens should be rules-based

We have learned from past experience that public policy proceeds through two phases during major crises: first, as one influential economist has said, “whatever it takes”; then, “Oh my God, what have we done!”

The Canada Emergency Response Benefit represents the best of whatever-it-takes policy. The speed, the depth, and the sheer uncertainty of the duration and aftermath of the COVID19 crisis called for maximum flexibility in the making of public policy, and full discretion for leaders to respond quickly. This is equally the “In it altogether” phase. It motivates significant, widely available, and easy to get income support intended to avert a liquidity crisis and ensure the survival of many asset-poor households.

The CERB is a generous payment, minimally targeted, with an on-off eligibility rule that would normally create a significant work disincentive, a program totally appropriate for times when the standard rules of economic policy are flipped upside down. The work disincentives of this program are a feature, not a bug. For many there is no work to be had, while for others work should be avoided to maximize the physical distancing necessary to reduce the reproduction rate of the virus, and flatten the curve. Survival, not stimulus, is the watchword for policy.

But re-opening the economy in stages, according to risks of re-infection and flare-ups, makes clear that we are in-it-together only until we are not. And yet uncertainty continues to prevail: will the recovery be V, U, W, or L-shaped? At what point do temporary layoffs morph into permanent layoffs that lengthen spells of unemployment, and further depress consumer confidence?

In the “OMG, what have we done” phase, giving maximum flexibility and discretion to government may even add to uncertainty.

Read more…

Business cycles and the unemployment rate

The COVID19 crisis has unleashed an economic crisis that is unprecedented in its speed and in its depth, making these very interesting times to study macro-economics.

Lecture 9 of Economics for Everyone describes the anatomy of the business cycle, and relates these swings in macroeconomic activity to a statistic that, as much as any other, speaks directly to the lives of citizens, the unemployment rate.

So in this lecture we describe the anatomy of the business cycle, how macro-economists link changes in GDP from its potential to changes in the unemployment rate, and finally just exactly what is this statistic called the “unemployment rate” and how is it measured by statistical agencies.

Download the presentation as a pdf.

The meaning, the measurement, and the use of GDP

In this eighth lecture of Economics for Everyone, we begin our discussion of macroeconomics, the study of the overall level of economic activity.

The lecture offers some background and motivation by examining the sharp increase and sluggish fall of the unemployment rate during the 1930s, the Great Depression. This led to a crisis in economic thinking, and to the publication of John Maynard Keynes’s “General Theory”. Thus macro-economics was born.

Our first challenge involves a host of measurement issues, and in this lecture we examine the meaning, the measurement and the use of Gross Domestic Product. This statistic is nicely presented, reviewed, and evaluated in Diane Coyle’s book, GDP: A Brief but Affectionate History, and it is the major reading on your list for this lecture.

 

Download the presentation for Lecture 8, “The Meaning and Measurement of Macroeconomic Activity” as a pdf, and if you like listen to narrated version.

 

COVID-19 is not the great leveller, it’s the great revealer

In a medical sense, COVID-19, as highly contagious as it is, can be thought of as the great leveller. No one has immunity, and we face the health risk of this virus with a sense of our common humanity.

But in a socio-economic sense, it is not as contagious. The jobs some of us hold give us an economic immunity, and we face the economic risk of this virus with a very different sense of our interconnectedness.

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Canada’s unemployment rate will likely double to 10%, and that’s an understatement

Normally, I don’t venture into to predicting month-to-month changes in the unemployment rate, but this month is an exception for two reasons. The changes are certainly going to go well beyond the statistical noise inherent in the Statistics Canada survey, so there is no chance that the picture will be clouded. And history really isn’t a guide to what is coming next (in the very short term), so sophisticated models based on past data don’t have a particular advantage. My bets are on an almost doubling of the Canadian unemployment rate between February and March, with even this being an understatement because the official survey preceded some of the more dramatic shutdowns that happened later in the month. I’m suggesting that we are even probably close to 15% right now.

Read more…

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