Early life conditions can have long-lasting effects on individual development and labour market success. Using a sequence of reforms that raised the minimum school-leaving age in Europe, this column investigates how access to books at home influences educational and labour market outcomes. The returns to an additional year of education for individuals brought up in households with few books are much lower than for the luckier ones who had more than a shelf of books at home.
Giorgio Brunello, Guglielmo Weber, Christoph Weiss, 15 June 2016
Jean-Marc Fournier, 26 May 2016
The limits of the European Single Market have often been highlighted. This column argues that although implicit barriers remain, the Single Market has delivered substantial benefits to member countries. New empirical evidence is presented of the trade and FDI gains that Central and Eastern European countries have enjoyed since joining the Single Market. On top of making regulations more competition-friendly, regulatory harmonisation can boost the economic links between countries.
Matthias Doepke, Fabian Kindermann, 03 May 2016
Europe is in the midst of a major demographic crisis, with many countries facing ultra-low fertility rates. This column uses survey data from 19 European countries to show how low fertility can be traced to disagreement within couples about having babies. In low-fertility countries, it is usually the women who bear most of the burden of childbearing, and who veto having more babies. Fertility can be raised by policies that specifically lower cost to women of childcare, whereas general subsidies for childbearing are much less effective.
Gabriel Felbermayr, Jasmin Gröschl, Thomas Steinwachs, 27 April 2016
The refugee crisis has placed Europe’s Schengen Agreement under stress, with some calling for the reintroduction of identity checks and other border controls. This column presents new estimates of the potential costs of such controls. On average, the removal of controls at one border acts like the removal of a 0.7% tariff. The controls currently notified to the EU Commission could lower EU GDP by around €12.5 billion. The full demise of Schengen would be about three times as costly.
Ioana Marinescu, J. Ignacio García Pérez, Judit Vall Castello, 07 April 2016
Short-term contracts are viewed as a way of stimulating youth employment. This column presents evidence that this is the case in Spain, but that such contracts are also detrimental to job stability and lifetime earnings. The negative effects get stronger the longer workers are exposed to fixed-term contracts.
Christopher Pissarides, 12 February 2016
There are certain conditions needed to make a common currency across diverse economies a success and the Eurozone is clearly not satisfying them. This column argues that institutions and policies in place six years after the debt crisis have mitigated the risks of another Great Recession. But they have not done enough to alleviate the need for fiscal transfers in the future. We need ever-closer fiscal cooperation, with some caveats.
Christian Krohn, 12 February 2016
The role of equities in Europe’s capital markets has diminished since the Global Crisis and is only slowly recovering to its prior level. This column argues that revitalising its equity markets has much to offer Europe in terms of funding business growth, creating jobs, and delivering long-term pension returns for the ageing population. The root causes of Europe’s underutilised equity markets are both cultural and regulatory. Understanding and addressing these barriers are the next necessary steps towards the full utilisation of equities.
Jacob Funk Kirkegaard, 25 January 2016
The migrant crisis will continue to top headlines in 2016. This column takes a detailed look at the EU’s response to dealing with migration, concluding that everything points towards failure as the likely outcome. Unlike the most critical aspects of the Eurozone Crisis, the main drivers of the current migration emergency are external factors such as war. These circumstances are highly unlikely to change in the medium term. The hardball politics and threats that proved extraordinarily effective in coercing member states into accepting domestic political conditionality in return for financial aid during the Eurozone Crisis are doomed to fail when it comes to migration.
Daiji Kawaguchi, Ayako Kondo, 13 January 2016
Economists frequently discuss the ‘scarring effects’ the Great Recession has had on young people in Europe. This column tentatively challenges the received wisdom of permanent scarring. Young graduates mitigate some of the negative welfare effects of graduating during bad times by living with their parents for longer.
Sheilagh Ogilvie, 23 December 2015
A vocal set of economists argue that economies can succeed in the absence of strong state and public institutions. This column looks to the ‘Champagne fairs’ of medieval Europe for lessons in how important public institutions can be. Public authorities are crucial – for good or for ill. When rulers provided these as generalised institutional services to everyone, the Champagne fairs flourished. When they granted them to privileged groups only, trade declined and business moved elsewhere.
Nauro F. Campos, Fabrizio Coricelli, 11 December 2015
Whatever the result of Britain’s upcoming in-or-out referendum on EU membership, its relationship with the EU will change substantially. To assess these changes, it is important to understand how Britain has benefited from EU membership. This column argues that EU membership has brought benefits through three key mechanisms – trade, foreign investment, and finance. The current focus on UK exports to and imports from the EU may severely underestimate the true potential costs to Britain of Brexit.
Kevin Daly, Tim Munday, 28 November 2015
The fallout from the Global Crisis and its aftermath has been deeply damaging for European output. This column uses a growth accounting framework to explore the pre-Crisis and post-Crisis growth dynamics of several European countries. The weakness of post-Crisis real GDP in the Eurozone manifested itself in a decline in employment and average hours worked. However, decomposing growth for the Eurozone as a whole conceals significant differences across European countries, in both real GDP growth and its factor inputs.
Carlo Favero, Vincenzo Galasso, 18 October 2015
Demographic trends in Europe do not support empirically the secular stagnation hypothesis. Our evidence shows that the age structure of population generates less long-term growth but positive real rates. Policies for growth become very important. We assess the relevance of the demographic structure for the choice between macro adjustements and structural reforms. We show that middle aged and elderly individuals have a more negative view of reforms, competitiveness and globalization than young. Our results suggest that older countries -- in terms of share of elderly people -- should lean more towards macroeconomic adjustments, whereas younger nations will be more supportive of structural reforms.
Shekhar Aiyar, Anna Ilyina, Andreas Jobst , 05 November 2015
European banks are struggling with high levels of non-performing loans. This column explores the channels through which persistently high non-performing loans hold down credit growth and economic activity. A survey of EU authorities and banks reveals that the loans are not written-off for a variety of deep-seated reasons, including legal and tax code issues. An agenda is proposed comprising tightened bank supervision, structural bankruptcy reforms, and the development of markets for distressed assets.
Simone Moriconi, Giovanni Peri, 19 October 2015
Unemployment rates vary widely across EU countries. While national institutions and policies explain much of the variation, cultural values, attitudes, and beliefs may also play a role. This column uses survey data from 26 EU countries to investigate the existence of culturally transmitted preferences for work. Country-specific preferences for work are found to have a positive effect on emigrants’ labour market outcomes, with those from countries with an above-average preference for work having higher employment rates abroad. Cultural preferences are significant enough that EU countries may never converge to the same employment rate.
Plamen Iossifov, Jiří Podpiera, 16 February 2015
The ongoing, synchronised disinflation across Europe raises the question of whether non-Eurozone EU countries are affected by the undershooting of the Eurozone inflation target, by other global factors, or by synchronised domestic, real sector developments. This column argues that falling world food and energy prices have been the main disinflationary driver. However, countries with more rigid exchange-rate regimes and/or higher shares of foreign value added in domestic demand have also been affected by disinflationary spillovers from the Eurozone.
Masayuki Morikawa, 23 November 2014
The appropriate level of public sector wages is debated frequently in every country, and the debate has intensified in the wake of the global financial crisis. This column presents evidence that regional wage differentials in Japan are greater in the private sector than in the public sector. In regions where public sector wages are relatively high, skilled individuals may self-select into public sector jobs. At the same time, public sector employers in metropolitan regions such as Tokyo may have difficulty in hiring high quality employees.
Morris Goldstein, 18 November 2014
Results from last month’s EU-wide stress test are reassuring, especially for countries at Europe’s core. This column warns against a rosy interpretation. The test relies on risk-weighted measures of bank capital ratios that have been shown to be less predictive of bank failure than unweighted leverage ratios – a metric already adopted by the US Fed and Bank of England. In addition, many experts recommend much higher leverage ratios than currently required. The ECB must do more to fix undercapitalisation.
Brent Glover, Seth Richards-Shubik, 12 November 2014
Understanding the probability and magnitude of financial contagion is essential for policymaking. This column applies a framework for modelling financial contagion to data on the cross-holding and credit risk of sovereign debt in Europe. Credit markets perceived little risk of contagion from these spillovers following a sovereign default. It is important for policy to assess other possible channels for contagion that could generate even bigger losses.
Jean Pisani-Ferry, 07 November 2014
A triple-dip recession in the Eurozone is now a distinct possibility. This column argues that additional monetary stimulus is unlikely to be effective, that the scope for further fiscal stimulus is limited, and that some structural reforms may actually hurt growth in the short run by adding to disinflationary pressures in a liquidity trap. The author advocates using tax incentives and tighter regulations to encourage firms to replace environmentally inefficient capital.