DEPARTMENT OF ECONOMICS

Since 1932, the Northwestern Alumni Medal has celebrated alumni who have had a transformative impact on their fields, who have performed exemplary volunteer service to society, or who have demonstrated an outstanding record of service and support to the University. Distinguished recipients—ranging from innovative entrepreneurs and Supreme Court justices to award-winning writers and a Nobel Prize recipient—truly exemplify the ideals of the University through their life, work, and service.

Before Covid-19, the most recent economic recessions in the United States have been “mancessions,” meaning that employment losses were larger for men than women. In contrast, the Covid-19 recession has led to a sharp decline in women’s employment. Because workers who lose employment during a recession often experience earnings losses that long outlast the recession itself, the large impact of the recession on women matters for the evolution of the gender wage gap and women’s future prospects in the labor market. The fact that this recession is impacting men and women differently from past recessions could also have broader consequences for families and the trajectory of the economic recovery.

"Mancession" might sound like the name of an awful jazz fusion band, but it's a term that the economist Mark Perry helped coin a decade ago. It described how the Great Recession, like the three recessions before it, disproportionately hurt men. In typical recessions, consumers cut back spending on expensive items like cars, refrigerators, computers and houses, which ravages manufacturing, construction and other industries that disproportionately employ men. Men's unemployment numbers shoot up. Meanwhile, female-dominated professions in areas such as education, health care and in-person services tended to be more recession-proof.

From deep-rooted racism to the Covid-19 pandemic, from extreme inequality to ecological collapse, our world is facing dire and deeply interconnected emergencies. But as much as the present moment painfully underscores the weaknesses of our economic system, it also gives us the rare opportunity to reimagine it. As we seek to rebuild our world, we can and must end the carbon economy.

Today’s engine of economic growth may lessen the longterm economic impact of the COVID-19 pandemic.

This article reviews the recent literature on the determinants of college major choices. We first highlight long-term trends and persistent differences in college major choices by gender, race, and family background. We then review the existing research in six key areas: expected earnings and ability sorting, learning, subjective expectations, non-pecuniary considerations, peer and family effects, and supply side factors. We examine and compare the various approaches employed by previous research and highlight key areas for future research.

As the COVID-19 pandemic progresses, researchers are reporting findings of randomized trials comparing standard care with care augmented by experimental drugs. The trials have small sample sizes, so estimates of treatment effects are statistically imprecise.

Mark Witte started the event with an introduction of our speakers before handing the mic over to Eichenbaum to discuss his joint research with Sergio Rebelo and Mathias Trabandt. Their paper, "The Macroeconomics of Epidemics" discusses the idea of "smart containment" and how that could be the path forward to economic recovery. Doepke then presented on how COVID has impacted the family structure, including gender dynamics and disparities. The event concluded with a lively Q&A with questions pulled from our alumni, moderated by Witte. For those unable to watch with us live, please enjoy the recording on YouTube.

For a search-theoretic model of the labor market, we seek conditions for the existence of a Balanced Growth Path (BGP), an equilibrium in which unemployment, vacancy, and worker’s transition rates remain constant in the face of improvements in the production and search technologies. A BGP exists i? ?rm-worker matches are inspection goods, and the idiosyncratic component of productivity of a match is drawn from a Pareto distribution. Declining search frictions contribute to the growth of the economy with an intensity that depends on the tail coe?cient of the Pareto distribution. A corollary of the theory is that market size does not a?ect unemployment, vacancy and worker’s transition rates even with non-constant returns to scale in search. We develop a strategy to measure the rate of decline of search frictions, the returns to scale in search, and their contribution to growth.

Foreign currency debt is considered a source of financial instability in emerging markets. We propose a theory in which liability dollarization arises from an insurance motive of domestic savers. Since financial crises are associated to depreciations, savers ask for a risk premium when saving in local currency. This force makes domestic currency debt expensive, and incentivizes borrowers to issue foreign currency debt. Providing ex post support to borrowers can alleviate the effect of the crisis on savers' income, lowering their demand for insurance, and, surprisingly, it can reduce ex ante incentives to borrow in foreign currency.

Social distancing restrictions and demand shifts from COVID-19 shuttered many small businesses and entrepreneurs in the first month of widespread shelter-in-place restrictions. Fairlie (2020) finds that 22 percent of small business owners were inactive in April 2020 with disproportionate impacts on African-American, Latinx, immigrant, and female business owners. What happened in the second month of social distancing restrictions? Were there further closures or a rebound? This paper provides the first analysis of impacts of the pandemic on the number of active small businesses in the United States using nationally representative data from the May 2020 CPS – the second month capturing effects from mandated restrictions.

Economic Theory Fellows are selected for their scientific excellence, originality, and leadership, high ethical standards, and scholarly and creative achievement. The research contributions of fellows may exist in many areas of theoretical economics, including pure and applied research, and government service. The primary qualification for fellowship is to have substantially advanced economic theory work. This achievement may be evidenced by an outstanding publication record, strong editorial board service, honorary, scientific, educational and professional achievements, or through the training of graduate students.

We hope you enjoy reading the Summer 2020 edition of our Newsletter. This edition includes Q&A's with Professor Martin Eichenbaum and alumnus Abdoulaye Ndiaye, thank you to our wonderful donors, faculty updates and more!

As tax revenues shrink and emergency spending to address the pandemic increases, governments are facing tough budget decisions. Social programs that alleviate poverty and enrich the lives of millions of people are coming under pressure. But a new study suggests that even if fiscal prudence were the only consideration, officials taking a long view should think twice before cutting social programs, because many of them ultimately turn a profit for taxpayers.

Jane Olmstead-Rumsey is a PhD candidate in economics in the Weinberg College of Arts and Sciences. Her research utilizes mathematical models to represent economic decisions and interactions and uses data to test the predictions of these models. Jane was recently featured on PBS’s To The Contrary, discussing a study that she co-authored on how the Coronavirus pandemic is impacting gender equality and equal pay.

American parents spend more time and money on their children than ever — and that was before the pandemic. Now, with remote school ending for the summer and a far-from-normal fall expected, parenting is becoming only more demanding. It’s not just that children need more supervision, with their usual activities closed. Unlike previous generations of parents, today’s feel pressured to use time with their children for active engagement and continual teaching. Now that pressure is compounded by fears about missing months of education, and about widening gaps between children whose parents can provide significant at-home enrichment and those whose parents cannot.

Two new studies show that giving pay raises to low-wage workers is good for consumers, too. That finding could add momentum to efforts to help grocery store clerks, nursing home workers and delivery drivers who are being paid a minimum wage despite their efforts being so essential during the current pandemic.

An unprecedented expansion of federal aid has prevented the rise in poverty that experts predicted this year when the coronavirus sent unemployment to the highest level since the Great Depression, two new studies suggest. The assistance could even cause official measures of poverty to fall.

Before COVID-19 arrived, social scientists had already established that cash transfers and mobile money are two of the most effective tools for assisting the poor and vulnerable in difficult conditions. Now is the time for governments to act on those findings, and to build up additional data for the future.

Evidence from Sweden shows even short stints of time at home for fathers can have long-term consequences.

Despite it all — a nation on edge, with an untamed pandemic and convulsive protests over police brutality — for the first time in three months there is a scent of economic optimism in the air. Employers added millions of jobs to their payrolls in May, and the jobless rate fell, a big surprise to forecasters who expected further losses. Businesses are reopening, and the rate of coronavirus deaths has edged down. The Trump administration has begun pointing to what are likely to be impressive growth numbers as the economy starts to pull out of its deep hole.

We use a shift-share approach to quantify the general equilibrium effects of population aging on wealth accumulation, real interest rates, and capital flows. Combining population projections with household survey data from the US and 24 other countries,we project the evolution of wealth-to-GDP ratios by changing the age distribution,holding life-cycle asset and income profiles constant. We find that this compositional effect of aging is large and heterogeneous across countries, ranging from 85 percent-age points in Japan to 310 percentage points in India over the rest of the twenty-first century. In a general equilibrium overlapping generations model, our shift-share provides a very good approximation to the evolution of the wealth-to-GDP ratio due to demographic change when interest rates remain constant. In an integrated world economy, aging generates large global imbalances in the twe

Working from home has highlighted and compounded the heavier domestic burden borne by women. Now office reopenings may force new career sacrifices.

Four recipients of a 2020-21 Open Educational Resource grant will receive at least $5,000 to develop free teaching material for a Northwestern undergraduate course. The grant committee estimates that the completed projects will save 1,295 undergraduates $247,575 in the first year. The Open Educational Resources Grant (OER) Program is designed to support faculty who are interested in developing and using OER in their undergraduate courses. Funded by the Office of the Provost and the Libraries, the grant program supports the work involved in finding, creating, using, and sharing OER as a replacement for commercial textbooks.

This paper discusses cultural barriers to women's participation and success in the labor market in developing countries. Jayachandran begins by describing how gender norms in the relationship between economic development and female employment, as well as how gender norms differ substantially across societies at the same level of economic development. She then discusses in more detail specific gender-related social norms and how they constrain women's employment. She presents examples of policies aimed at dismantling these cultural barriers to female employment and the impacts they have.

This paper studies how the monetary policy regime affects the relative importance of nominal exchange rates and inflation rates in shaping the response of real exchange rates to shocks. We document two facts about inflation-targeting countries. First, the current real exchange rate predicts future changes in the nominal exchange rate. Second, the real exchange rate is a poor predictor of future inflation rates. We estimate a medium-size, open-economy DSGE model that accounts quantitatively for these facts as well as other empirical properties of real and nominal exchange rates. The key estimated shocks that drive the dynamics of exchange rates and their covariance with inflation are disturbances to the foreign demand for dollar-denominated bonds.

The researchers use comprehensive patient-level discharge data to study the effect of Medicaid on the use of hospital services. Their analysis relies on cross-state variation in the Affordable Care Act’s Medicaid expansion, along with within-state variation across ZIP Codes in exposure to the expansion. They find that the Medicaid expansion increased Medicaid visits and decreased uninsured visits. The net effect is positive for all visits, suggesting that those who gain coverage through Medicaid consume more hospital services than they would if they remained uninsured. The increase in emergency department visits is largely accounted for by “deferrable” medical conditions. Those who gained coverage under the Medicaid expansion appear to be those who had relatively high need for hospital services, suggesting that the expansion was well targeted.

Tipping involves dozens of billions of dollars annually in the US alone and is a major income source for millions of workers. But beyond its economic importance and various economic implications, tipping is also a unique economic phenomenon in that people pay tips voluntarily without any legal obligation. Tipping demonstrates that psychological and social motivations can be a substantial reason for economic behavior, and that economic models should go beyond a selfish economic agent who has no feelings in order to capture the full range of economic activities.

The ratification of the Nineteenth Amendment in 1920 officially granted voting rights to women across the United States. However, many states extended full or partial suffrage to women before the federal amendment. In this paper, we discuss the history of women's enfranchisement using an economic lens. We examine the demand side, discussing the rise of the women's movement and its alliances with other social movements, and describe how suffragists put pressure on legislators. On the supply side, we draw from theoretical models of suffrage extension to explain why men shared the right to vote with women. Finally, we review empirical studies that attempt to distinguish between competing explanations...

It is already obvious that the initial impact of the Covid-19 economic crisis will be strongly disinflationary. Prices have fallen sharply in sectors that have been most affected by the lockdowns, including restaurants, hotels, airlines and housing. Furthermore, the past week has seen an extraordinary dip into negative territory for oil prices, especially at the front end of energy markets. Headline US inflation will, therefore, fall markedly below the Federal Reserve’s 2 per cent target, while the eurozone and Japan will record negative inflation in a matter of months. That, however, is far from the end of the story.

Economists Martin Eichenbaum and Sergio Rebelo say selective quarantine can reduce the number of COVID-19 deaths while lessening negative economic impacts.

Inflation in the rich world resembles a fairy-tale beast. Older members of society frighten younger ones with stories of the creature’s foul deeds, but few serious people expect to see one and some doubt it ever existed. Although high inflation seemed a fixture of the economic landscape in the 1970s, changes to policy and the structure of the global economy since have ushered in four decades of ever meeker growth in prices. As covid-19 shutters businesses and leaves supermarket shelves bare, some economists fret that the pandemic could lead to inflation making an unwelcome return.

Humans are at war with a foreign and hostile life-form. And no, this is not the "War of the Worlds" — it is a war we have been fighting since the beginning of history, and long before. Human history can be described as an everlasting struggle between people and microscopic pathogens, as author and historian William McNeill taught us a generation ago. We are dealing with a deadly, stubborn, and protean set of enemies. Some are viruses, some are bacteria and some are parasites. Each one is different in how they make us sick and how we fight them.

Co-Author: Joshua Klieger. This paper investigates whether motor vehicle driver behavior changes when there are more bicycles on the road. Data on trips on a rapidly expanding public bike share scheme in Chicago are combined with speed violations captured by a network of 79 cameras. Using weekly data from July 2014 to December 2016, violations at 26 sites where there was a considerable increase in bicycle traffic are compared with a control group of 53 locations where rental bicycles are not available. An increase in rental bicycle usage is statistically related to a reduction in the number of speeding violations, with an estimated elasticity of -0.04.

Heating represents the largest portion of annual home energy spending in the United States, despite being used for only part of the year. Low-income households often face a difficult choice between paying for adequate heating or spending on other necessities. IPR economist Seema Jayachandran, Janjala Chirakijja (PhD 2018) of Monash University in Australia, and Pinchuan Ong, a Northwestern PhD student, are the first to find a direct effect between lower heating prices and a reduction in the number of Americans who die in winter.

It’s a brutal trade-off: inducing massive economic suffering in order to save human lives. That’s what policymakers across the world are weighing as they decide whether to shutter millions of stores, restaurants, and offices in hopes of curtailing the spread of COVID-19. These drastic policies, enacted across much of the U.S., will undoubtedly save lives. Yet the economic toll of these measures is expected to be in the trillions, leading some commentators, including President Trump, to argue that the cost of stemming the pandemic could soon exceed the human cost of the pandemic itself. However, new research suggests that not shuttering these businesses would be much costlier to society, once both the economic and human costs are factored in. Although proceeding with business as usual would avert a severe recession, it would also cause hundreds of thousands more deaths—and, based on...

We present a theory of Keynesian supply shocks: supply shocks that trigger changes in aggregate demand larger than the shocks themselves. We argue that the economic shocks associated to the COVID-19 epidemic—shutdowns, layoffs, and firm exits—may have this feature. In one-sector economies supply shocks are never Keynesian. We show that this is a general result that extend to economies with incomplete markets and liquidity constrained consumers. In economies with multiple sectors Keynesian supply shocks are possible, under some conditions. A 50% shock that hits all sectors is not the same as a 100% shock that hits half the economy. Incomplete markets make the conditions for Keynesian supply shocks more likely to be met. Firm exit and job destruction can amplify the initial effect, aggravating the recession. We discuss the effects of various policies. Standard fiscal stimulus can be...

Today is Equal Pay Day, which represents just how much further into the calendar year American women would have to work to earn what their male counterparts made last year. Women in the United States who work full time, year-round, earn on average 82 cents for every dollar that a man earns, according to Census Bureau data analyzed by the American Association of University Women. Women of color fare far worse: Black women earn 62 cents on the dollar and Hispanic women 54 cents. This year, as a pandemic cripples the economy, these inequities will come into sharp focus, as many women confront the coronavirus on the front lines or lose their jobs because of the economic downturn.

Economist Sergio Rebelo has spent the past 2 weeks holed up in his Chicago home, working feverishly to crack the economics of the coronavirus. Armed with a hybrid model that combines how viruses spread with how people work and consume, the Northwestern University researcher is one of a number of macroeconomists now trying to shed light on the balance between the economic impact of locking down major parts of the economy and the economic damage wrought by the disease itself. “When you think about the optimal policy, you really want to see the effect between the economy and epidemiology,” Rebelo says...

COVID-19 Policy Must Take All Impacts into Account. Human health is obviously crucial, but epidemiological models should not ignore economic and ethical considerations...

President Donald Trump is considering easing health directives that prevent the spread of the coronavirus in an attempt to contain economic fallout. A new analysis suggests that those measures are helping to save hundreds of thousands of lives. Economists led by Northwestern University’s Martin Eichenbaum wrote that keeping social-distancing measures in place before the number of new virus cases declines -- in other words, before a peak in the infection rate -- could limit infections and prevent as many as 600,000 additional U.S. deaths…

SUPPORTING AUTHORS: Takero Doi, Takeo Hoshi, Kazuhito Ikeo, Motoshige Ito, Katsuhito Iwai, Daiji Kawaguchi, Nobuhiro Kiyoyaki, Noritaka Kudo, Kiminori Matsuyama, Shigeki Morinobu, Kazumasa Oguro, Tetsuji Okazaki, Takashi Oshio, Tatsuyoshi Saijo, Makoto Saito. We must pool our collective wisdom and mobilize all policy tools to cope with the coronavirus pandemic. We also need to reform our institutions and regulations, including medical delivery schemes, to enhance our social and economic resilience to this crisis. The main priorities of such economic measures should be to (1) prevent the spread of infection, (2) mitigate short-term impacts (such as reduced income or liquidity), and (3) encourage long-term structural reform.

Zach Hennenfent (19') – As an ETA at Savannakhet University in Laos, Hennenfent works with students in the international program for rural development. He also teaches economics, which he studied at Northwestern. Lauren Thomas - After working for two years at the Federal Reserve Bank of New York, Thomas is enrolled in master’s program in Economics at Université Lumière Lyon, specializing in experimental and behavioral economics, while researching the role of political identity in the marketplace for her Fulbright project.

Our economy runs on mutual interdependence. As we spend time in self-isolation, lets think about all the people that depend on us to make a living: the Lyft driver, the dry cleaner, the child-care provider, the barista at the coffee shop. Everything from sports games to evenings out with friends gets canceled because of covid-19, economic activity is grinding to a halt…

We extend the canonical epidemiology model to study the interaction between economic decisions and epidemics. Our model implies that people’s decision to cut back on consumption and work reduces the severity of the epidemic, as measured by total deaths. These decisions exacerbate the size of the recession caused by the epidemic. The competitive equilibrium is not socially optimal because infected people do not fully internalize the e§ect of their economic decisions on the spread of the virus. In our benchmark scenario, the optimal containment policy increases the severity of the recession but saves roughly 0.6 million lives in the U.S.

IPR economist studies healthcare access, physician incentives, and mental health.

Most recently, Eberly has been studying the implications of rising "intangible" investment — the investments firms make in software, intellectual property, and the like — for aggregate investment, market concentration, and productivity growth.

By merging KLEMS data covering 16 industry groups within the total economy and 11 manufacturing sub-industries, we compare and contrast productivity growth from 1950 to 2015 in the United States with an aggregate of the ten largest European nations (EU-10) from 1972 to 2015.

In the two years following a fatal shooting, antidepressant prescriptions for young people living near the affected school were 21 percent higher than in areas farther away.

We study potential non –exclusive mechanisms that could drive the main result: our evidence suggests that immigrants behave better than natives and cause fewer disruption in daily activity, possibly improving the learning environment (Lazear, 2001).

We hope you enjoy reading our Winter 2020 edition of our Newsletter. This edition includes an update from our new Chair, Joseph Ferrie, a thank you to our wonderful donors, faculty updates, alumni spotlights and more!

Joseph Zeira: A professor at the Hebrew University of Jerusalem, Zeira was one of the first economists to model automation. My recent work in this area owes much to his pioneering research.

President Morton Schapiro underscored the critical role higher education can play in unlocking Mexico’s economic potential as he led a Northwestern delegation last week to Mexico City to launch a partnership with Universidad Iberoamericana, one of the country’s most prestigious schools.

While over 240,000 American students experienced a school shooting in the last two decades, little is known about the impacts of these events on the mental health of surviving youth. Using large-scale prescription data from 2006 to 2015, we examine the effects of 44 school shootings on youth antidepressant use in a difference-in-difference framework. We find that local exposure to fatal school shootings increases youth antidepressant use by 21.4 percent in the following two years. These effects are smaller in areas with a higher density of mental health providers who focus on behavioral, rather than pharmacological, interventions.

No matter which method of transport you choose, Professor Savage has some good news: “Over the last 50 years, most forms of transport are at least 50 percent safer.”

The winners of this year’s Nobel in economics did pioneering field experiments that sometimes didn’t work as expected.

The institute will support the study of foundational problems related to machine learning, high-dimensional data analysis and optimization in both strategic and non-strategic environments. The primary activity of the institute will be thematically focused quarters which will coordinate graduate course work with workshops and external visitors. The institute will facilitate collaboration between Chicago-area institutions through a number of initiatives, and across multiple disciplines. Several components of the research agenda have direct applications areas, and institute will involve practitioners in development economics, online markets, public policy, as well as data scientists.

Justin R Karlin, Daniel Aaron Weiss, Enzo Bastos Profili, Chandana Manjunath Sooranahalli & Ryan Michael Boyd

Professor Jeff Ely and three students attended the Northwestern/Iowa game on October 26 where Professor Ely spoke about Purple Pricing, the proprietary algorithm he helped build to aid the Wildcat athletic department increase gate revenue.

We are grateful to Producer and Co-director Jeffrey D. Shulman (WCAS ’01, KSM ’04, KSM ’06), Professor of Marketing at the University of Washington Foster School of Business, for moderating an important discussion.

Thank you to the more than 75 students, faculty, and staff who attended our Open House. We enjoyed sharing information and insights about our major and department and hope to see you at another event soon!

(Together with colleagues in Northwestern's Departments of Psychology and Medical Social Sciences, Massachusetts General Hospital, the Boston VA Hospital)

The prize is named for the late Jonathan Hughes, professor of economics at Northwestern from 1966 until his death in 1992. Many of the students whose PhDs Joel supervised nominated him for the prize and were present with him for the announcement at the Association’s annual meeting in Atlanta.

In his new book, Professor Charles F. Manski examines how cutting-edge economics can improve decision making methods for doctors.

Burt Weisbrod's research focuses on understanding the consequences of strong and weak managerial rewards for measured performance in public and nonprofit organizations, such as those found in health care, higher education, police and the courts of law.

Barry Glassner is an author and former president of Lewis & Clark College. Morton Schapiro is an economics professor and president of Northwestern University.

Since 2005, productivity growth in the US and Europe has dipped below 1%. Using new industry-level from the US and ten EU countries, this column shows that that the industrial composition of the slowdown was similar in Europe and the US. Falling multifactor productivity growth explains both the magnitude and composition of falling productivity growth on both sides of the Atlantic. Decelerating technical change, rather than slowing investment, was the primary driving force in the transatlantic slowdown.

A lot of innovation in business benefits from experience. Youth has its triumphs, but some roads to success are lengthy. They require age and staying power.