And payroll jobs numbers rose over the past fortnight and are now back at roughly where they were this time last year. Meanwhile, the minutes from the RBA’s 2nd February Monetary Policy Board meeting depict the central bank acknowledging the possibility of risks to asset prices and leverage from low interest rates but remaining firm in its conviction that easy money will be required for several years yet. The weekly ANZ-Roy Morgan Consumer Confidence Index slipped last week, likely in response to the snap lockdown in Victoria. More than 181 million COVID-19 vaccines have now been given worldwide. The fall in UK GDP last year was the worst in about three centuries but Japan’s Q4:2020 result showed that economy emerging from the pandemic somewhat stronger than expected.
This week’s readings include a look at the Treasury Secretary’s testimony to the Senate Select Committee on COVID-19, a new chart pack on budgetary developments, the future of GST revenues, global innovation, the race between vaccines and the virus, the Texas energy crisis, and how WFH is changing economic geography.
Please join me for a webinar on March 17 Economic Update: The Forces Shaping 2021.
And stay up to date on the economic front with our AICD Dismal Science podcast.
What I’ve been following in Australia:
The ABS said that employment rose by 29,100 people (seasonally adjusted) in January 2021 and was ‘only’ 45,600 people (just 0.4 per cent) below where it was in January 2020.
Between February 2020 and January 2021, the total fall in employment now stands at around 64,000 people (again, on a seasonally adjusted basis). By way of comparison, at the peak of the labour market disruption in May 2020, the number of employed was down by almost 878,000.
Full-time employment increased by 59,000 over the month while part-time employment decreased by 29,800. As a share of total employment, part-time employment is now 31.8 per cent and stands about 0.2 percentage points above its January 2020 share.
Monthly hours worked in all jobs fell by 86 million hours (4.9 per cent) over the month in January and were down 5.7 per cent over the year.
The participation rate fell 0.1 percentage points last month from December’s record high to 66.1 per cent but was still 0.1 percentage points higher than in January 2020. The employment-to-population ratio rose by 0.1 percentage points to 61.9 per cent in January this year, leaving it 0.7 percentage points lower than the same month last year.
The unemployment rate dropped to 6.4 per cent in January, 0.2 percentage points down from the December 2020 result. And with the underemployment rate also falling by 0.4 percentage points to 8.1 per cent, the underutilisation rate decreased by 0.6 percentage points to 14.5 per cent.
By state, employment growth over the month in January was strongest in Victoria, followed by Tasmania and the NT while employment fell in the ACT, Western Australia and South Australia.
The unemployment rate rose in South Australia, the NT and the ACT but fell across all other states.
Why it matters:
January’s labour market results were in broadly line with market expectations. The consensus had called for a 30,000 gain in employment and a fall in the unemployment rate to 6.5 per cent, so the actual outcomes of a 29,100 gain and a 6.4 per cent unemployment rate were reasonably close. January also marked a fourth consecutive month of labour market gains, led once again by Victoria as that state continues to recovery quite strongly from the H2:2020 lockdown.
Indeed, Australia’s labour market recovery overall continues to roll on in a quite impressive fashion. To give some context: On a seasonally adjusted basis, employment peaked at around 13 million in February last year, pre-pandemic. In the same month, total unemployment stood at a bit less than 696 million, giving a total labour force of around 13.7 million. Over the next few months to May 2020, employment slumped by around 878,000, the number of unemployed increased by 226,000 (and the numbers then kept on rising until July), and the labour force shrank by 652,000 as many Australians exited the labour market. That represented a huge negative shock to employment. Yet since then, the recovery has been remarkably quick, even with the Victorian lockdown meaning that recovery there has lagged the rest of Australia. By last month, total employment was ‘only’ a bit less than 64,000 lower than it had been in February and the labour force had grown by more than 118,000 over the same period as the participation rate returned to (close to) record highs. Granted, the number of unemployed is still 182,000 above where it was back then. Even so, there has been a pretty remarkable turnaround over a relatively short period, as after peaking at 7.5 per cent back in July, the unemployment rate fell rapidly from seven per cent in October to 6.8 per cent in November, 6.6 per cent in December and then to 6.4 per cent last month.
Australia’s jobs recovery is now looking pretty V-shaped. The next big test of this very positive trajectory will come with the scheduled end of the JobKeeper program at the end of March (see also next story).
Finally, one strange feature of the January results was an apparent discrepancy between the 0.2 per cent increase in employment over the month at the same time as the ABS reported a sharp 4.9 per cent decline in hours worked. The Bureau explained the difference in terms of a significantly larger than usual number of Australians choosing to take annual leave, long service leave or flexi leave in January. Ordinarily, seasonal adjustment would be expected to have smoothed this effect. But in this case the surge in people taking leave was extremely substantial this year, reflecting yet one more way in which the pandemic has altered both behaviour and statistical relationships.
New data from the ATO showed that the number of Australians on the JobKeeper scheme had fallen to 1.54 million by the end of last year, while the number of firms involved had fallen to 493,000. The original JobKeeper scheme (JobKeeper 1.0) was announced on 30 March 2020 and ran for six months, finishing on 27 September 2020. The program was later extended, albeit in modified form (JobKeeper 2.0), to run from 28 September 2020 to 28 March 2021.
The new numbers show that more than 2.1 million employees (and around 520,000 businesses) have exited from the scheme since the end of JobKeeper1.0. That’s a fall of 56 per cent in the number of employees across Australia as a whole, with the decline ranging from 70 per cent in Western Australia to 44 per cent in Victoria.
Expressed as a share of the pre-COVID workforce, the number of employees on JobKeeper across Australia has fallen from 29 per cent during JobKeeper1.0 to 13 per cent during the first quarter (September-December 2020) of JobKeeper2.0. Similarly, there have been big declines across the states in terms of the share of the workforce still reliant on JobKeeper, ranging from just five per cent of pre-COVID employment in the NT up to 18 per cent in Victoria. During JobKeeper1.0 the equivalent range was from 17 per cent to 33 per cent, respectively.
By industry, the scale of the fall in the number of employees on JobKeeper between versions 1.0 and 2.0 ranges from a 78 per cent drop in the case of health care and social assistance to a 36 per cent decline for transport, postal and warehousing.
In terms of continued dependence on JobKeeper relative to the pre-pandemic employment position, the data suggest that the arts and recreational services (with the number of recipients still equivalent to 31 per cent of pre-COVID employment) are now the most reliant on government support, followed by rental, hiring and real estate services (23 per cent) and professional, scientific and technical services (19 per cent).
In health care and social assistance, education and training, and retail trade, the number of employees still receiving JobKeeper is now below ten per cent of the pre-pandemic workforce.
Why it matters:
This latest set of numbers show that the decline in the number of Australians on JobKeeper is currently running ahead of Treasury’s projections and as such is consistent with the story of a (labour market) recovery that continues to beat expectations. Remember, Treasury had assumed that there would still be 2.2 million workers still on JobKeeper by the final quarter of last year. Instead, there were 1.5 million employees covered by JobKeeper 2.0 at the end of December. The MYEFO assumes that the second half of JobKeeper2.0 would see those numbers fall again, this time to 1.3 million, although there is now scope for more outperformance here.
Of course, while better than anticipated, that’s still a substantial number of people reliant on government support, so the upcoming end of the scheme will represent an important test of the labour market’s resilience. One way to think about the potential scale of any transition from JobKeeper to JobSeeker following the termination of the former is to look at the number of those currently on JobKeeper who are also working zero hours. In recent testimony (pdf), Treasury indicated that this share had fallen from around 25 per cent during JobKeeper1.0 to around ten per cent now, suggesting that around 100,000 workers could still be on zero hours by end March.
The ATO data also show the impact of Victoria’s lockdown during the second half of last year, with the state lagging the rest of Australia in terms of exit from JobKeeper.
The ABS said that between the week ending 14 March 2020 (the week Australia recorded its 100th confirmed COVID-19 case) and the week ending 30 January 2021, the number of payroll jobs decreased by 1.9 per cent while total wages had decreased by 3.4 per cent. Over the most recent period of data, between the week ending 16 January 2021 and the week ending 30 January 2021, payroll jobs increased by 1.3 per cent (compared to an increase of 4.1% in the previous fortnight) while total wages paid increased by 0.4 per cent (compared to an increase of 3.8 per cent in the previous fortnight).
Since the week ending 14 March 2020, three states have now grown the total number of payroll jobs: The Northern Territory (up 0.8 per cent), Western Australia (up 0.6 per cent) and South Australia (up 0.4 per cent). Elsewhere, job numbers are still down relative to the start of the pandemic, with the biggest losses in Victoria (down 3.7 per cent) and the ACT (down 2.3 per cent).
Over the past fortnight, the largest gains in payroll job numbers came in Tasmania (up 2.2 per cent) and the Northern Territory (up two per cent).
By industry, since the week ending 14 March 2020, five sectors have now added jobs with the largest gain in financial and insurance services (up five per cent). The hardest-hit sectors in terms of job losses are now education and training (down 12 per cent), accommodation and food services (down 11.5 per cent) and information, media and telecommunications (down 10.6 per cent).
Across the most recent fortnight of data, between the week ending 16 January 2021 and the week ending 30 January 2021, there were increases in payroll jobs across most industries (the three exceptions were agriculture, professional services, and health care and social assistance services), with the largest gains in administrative and support services (up 2.7 per cent) and in accommodation and food services and education and training (both up 2.6 per cent).
By firm size, payroll job losses over the pandemic period have been greatest in medium-sized firms (job numbers are down 4.4 per cent) and small firms (down 3.9 per cent).
According to the ABS, by demographic, job losses over the pandemic have been slightly larger for men (down 3.8 per cent) than for women (down three per cent), while the age group that has suffered the largest decline in payroll job numbers is those aged between 20 and 29.
Why it matters:
The payroll job data continue to be heavily influenced by seasonal patterns at the start of the year, as discussed in the first Weekly of this year. Keeping that important qualification in mind, the latest numbers show the labour market recovery continuing, with gains across most sector over the fortnight ending 30 January 2021 taking payroll job numbers back to roughly where they were in the same period last year (the week ending 1 February 2020).
In one sense, that means that payroll job numbers are now back to pre-pandemic levels, although note that relative to the ABS’s benchmark of the week ending 14 March, job numbers are still down. Still, that gap too continues to close.
The RBA published the minutes from the 2nd February Monetary Policy Meeting of the Reserve Bank Board. Readers of the Weekly will remember that, at that meeting, the RBA had announced that it would take its existing program of asset purchases or Quantitative Easing (QE), under which the central bank had pledged to buy $100 billion of government bonds of maturities of around 5 to 10 years at a rate of $5 billion per week, and extend it by buying an additional $100 billion of government bonds when the existing bond purchase program came to an end in mid-April 2021, maintaining the same purchase rate of $5 billion per week. Points of note from the record of the meeting include:
- Members noted that the RBA’s baseline forecasts had been upgraded relative to three months earlier (see also last week’s story on the February 2020 Statement on Monetary Policy). This upward revision reflected both a stronger starting point for the forecasts and an improved outlook which meant that both GDP and employment were now expected to reach their pre-pandemic levels between six to 12 months earlier than previously anticipated.
- Even so, the level of GDP was not expected to return to its previous trajectory over the forecast period, largely because population growth would be much lower than assumed prior to the pandemic, serving as headwind for both demand growth and labour supply.
- The unemployment rate was now expected to decline to around six per cent by the end of 2021, before reaching around 5¼ per cent by mid-2023. Despite more optimism around a lower level of labour market scarring, those forecasts still implied that there would be spare capacity in the labour market at the end of the forecast period.
- Restrictions on consumption due to the pandemic, precautionary behaviour and strong growth in incomes due to government stimulus measures had all contributed to a big rise in household savings during both Q2 and Q3 last year. Members ‘noted the significant uncertainty around whether and how quickly the savings ratio would return to more typical levels, and how households would use the additional savings accumulated during 2020.’
- After acknowledging that recent rises in house prices signalled the resilience of Australia’s housing market, members ‘noted that there were few signs of a deterioration in lending standards; however, lending standards would be monitored closely in the period ahead.’
- Both wages growth and underlying inflation were expected to remain below two per cent over the forecast period, reflecting ongoing spare capacity in the economy.
- ‘Members discussed the bond purchase program…They considered three factors: the effectiveness of the bond purchases; the decisions of other central banks; and, most importantly, the outlook for inflation and employment. The Board assessed that the bond purchase program had helped to lower interest rates and had contributed to a lower exchange rate than otherwise.’Elsewhere, the minutes note that ‘the additional monetary policy stimulus as a result of the Bank's package of policy measures announced in November 2020 had contributed to the Australian dollar being noticeably lower than it would have been otherwise.’And RBA staff estimates ‘suggested that longer-term Australian Government bond yields were around 30 basis points lower than otherwise as a result of the bond purchase program.’
- ‘Members…discussed the effect that low interest rates have on financial and macroeconomic stability. They acknowledged the risks inherent in investors searching for yield in a low interest rate environment, including risks linked to higher leverage and asset prices, particularly in the housing market. [But] The Board concluded that there were greater benefits for financial stability from a stronger economy, while acknowledging the importance of closely monitoring risks in asset markets.’
Why it matters:
After what has been almost a surfeit of central bank communication in recent weeks (a detailed speech from the governor, testimony to the House of Representatives Standing Committee on Economics and the release of February’s Statement), there was little for the minutes to add to our information set regarding the RBA’s views and forecasts. Unsurprisingly, then, they mainly reinforced the messages we’ve already been given: That things are going quite a bit better than expected but that the RBA still thinks a ‘bumpy and uneven’ recovery will leave the economy with significant spare capacity. That in turn means that – apart from a temporary blip later this year – inflation will remain below target, and therefore requires continued monetary support for the economy.
In addition, the QE program of government bond purchases was again justified in part by reference to the similar programs of other central banks and the potentially unhelpful implications for the Australian dollar if the RBA did not follow, and the risks around low interest rates (distortions to the housing market in particular and to asset markets in general) were acknowledged but found to weigh less than the case for strengthening the economy, with the latter’s positive impact on financial stability judged to exceed any risks posed by the former.
For another official take on where the Australian economy is at, see this week’s readings (below) for a summary of the Treasury Secretary’s recent testimony to the Senate Select Committee on COVID-19.
The ANZ-Roy Morgan weekly Consumer Confidence Index slipped by 1.3 per cent over the week to 13/14 February to an index level of 109.9.
In terms of the index components, the only subindex to rise over the week was ‘current financial conditions’, which edged up 0.2 per cent. In contrast, ‘future financial conditions’ dropped 2.8 per cent. ‘Current economic conditions’ and ‘future economic conditions’ both fell 1.8 per cent, and ‘time to buy a major household item’ dipped by 0.3 per cent.
Why it matters:
The decline in the weekly index appears to have been driven by news of the Victorian lockdown: confidence in Melbourne dropped 5.4 per cent although in the rest of Victoria it was up 7.6 per cent. Even so, confidence overall is still slightly up on the same week last year. Also worth noting: the drop in ‘future financial conditions’ was the sharpest fall in that sub-index for more than seven months.
. . . and what I’ve been following in the global economy
Bloomberg’s COVID-19 Vaccine Tracker estimates that by mid-February more than 181 million doses of vaccine had been administered in 79 countries. The average vaccination daily rate is now running at more than 6.4 million. If this rate were to be sustained, Bloomberg reckons it would take roughly 4.9 years to cover 75 per cent of the global population with a two-dose vaccine.
Available data suggest that vaccine coverage varies dramatically across countries (even excluding those who have yet to start their vaccination programs). For example, Israel has administered almost 75 doses per 100 people, the UAE more than 48 doses per 100 and the UK more than 24 doses per 100, while the average across the EU is only around five per 100. For China, the rate is less than three per 100, and for India, Indonesia and Mexico it is less than one per 100.
Why it matters:
The latest set of IMF forecasts (reviewed back in the first Weekly of this year) were underpinned by assumptions regarding the success of global vaccine rollouts. The Fund’s baseline assumed ‘broad vaccine availability in advanced economies and some emerging economies in summer 2021 and across most countries by the second half of 2022,’ and with this widening vaccine availability, plus improved therapies, testing, and tracing, ‘local transmission of the virus is expected to be brought to low levels everywhere by the end of 2022.’ As it acknowledged in its discussion of risks to this baseline, delays to the rollout of vaccines, slower-than-anticipated progress on medical interventions, and/or widespread hesitancy to be vaccinated could all undermine its forecasts.
It follows, then, that tracking the likely trajectory of the world economy over the coming years is going to be closely intertwined with tracking the global progress on vaccination.
So far, we’re still at the early stages of the process, so gauging the likely success and timeliness of a global vaccination program is difficult. That said, there are some early signs. The good news is that vaccines have become available much quicker than was expected for much of last year, nine vaccines have currently been authorised for use in one or more countries, and some economies are already well-advanced in deploying one or more of them. Moreover, the early results from Israel, for example, are encouraging, suggesting that the vaccination program there has led to a significant decline in the number of hospitalisations among the over-60s. All of which means that the starting point for the global timeline is arguably quite a bit better than we might have predicted through much of 2020.
But less welcome news is that there are (again, quite early) signs that the rollout process is going to be very uneven. Not only are there significant discrepancies apparent across advanced economies, but there are also large gaps opening up with the emerging and developing world. As noted above, the IMF’s forecasts assume some delay between vaccination rollouts in rich and poor countries, and indeed a gap between the two groups was always likely given the vastly different purchasing power available and the relative political incentives in play. But the longer the delay in laggards catching up with leaders, the greater the potential harm to those economies, the greater the epidemiological risk to everyone (the more widespread the virus, the greater the probability of harmful mutations, and the greater the risk that the effectiveness of existing vaccines will be reduced) and the greater the risk to the world economy overall.
Last Friday, the Office of National Statistics (ONS) reported that UK GDP grew by one per cent over the quarter in Q4:2020 to be down 7.8 per cent relative to Q4:2019.
Annual GDP fell by 9.9 per cent in 2020 in the largest drop on a statistical record (excel spreadsheet) that runs for more than three centuries. To find a larger contraction, you have to go all the way back to 1709 and a 13.4 per cent collapse in output during the ‘Great Frost’ when output was dominated by swings in agricultural production.
In levels terms, the pandemic has taken UK annual real GDP back to roughly where it was before 2014, wiping out more than half a decade’s growth.
Why it matters:
The near-ten per cent decline in UK GDP in 2020 makes the country one of the worst performers across advanced economies last year: by way of comparison, Eurozone GDP fell by an estimated 6.8 per cent, EU GDP was down 6.4 per cent, and US GDP contracted by 3.5 per cent. Japan (see next story) also did much better. Why has the UK’s economic performance been so bad? It likely reflects one of the worst pandemic outbreaks across the world economy and, as result, the imposition of some of the longest and most restrictive lockdown measures as well as big, voluntary changes in household behaviour.
Note that the ONS has previously cautioned about making international comparisons of GDP during the pandemic, arguing that when it comes to volume (‘real’) estimates of GDP, differences in the measurement of non-market output across countries, particularly related to the provision of healthcare and education, make comparisons difficult. As one alternative, the ONS suggests removing volume estimates of government consumption expenditure altogether from comparisons. Even so, on this basis, the UK still suffers from a bigger GDP decline than its peers, albeit by not quite so much.
According to Japan’s Cabinet Office, in the December quarter of last year Japan’s real GDP rose by three per cent over the previous quarter to leave the volume of output just 1.2 per cent below Q4:2019.
Across 2020 overall, real GDP contracted by 4.8 per cent following growth of just 0.3 per cent in 2019.
Why it matters:
Japan’s fourth quarter growth rate comfortably beat market expectations of a 2.3 per cent quarter-on-quarter rise and left the country’s overall performance in 2020 looking pretty reasonable by advanced economy standards. Granted, the decline was deeper than the 3.5 per cent contraction seen in the United States (and discussed in the previous Weekly). But it was much smaller than the downturns suffered by the EU and UK.
Interestingly, Japan’s Coronavirus Crisis (CVC) recession also looks to have been shallower than the economic downturn the country suffered during the global financial crisis (GFC), when real GDP fell by more than five per in 2009.
What I’ve been reading . . .
Treasury Secretary Steven Kennedy’s testimony to the Senate Select Committee on COVID-19. Points worth noting include:
- Echoing the RBA’s views from earlier this month, Dr Kennedy noted that Australia’s economic recovery was faster than had been anticipated last year, thanks to both policy support and ‘relatively good’ health outcomes.
- Australia’s total fiscal response to the pandemic was around 18 per cent of GDP, ‘with 12 per cent on the Commonwealth side and about six per cent on the state side.’
- The MYEFO forecasts assumed that there would be a COVID-19 vaccine available in Australia by March 2021, with a population-wide vaccination program fully in place by late 2021. Treasury’s current assessment is that ‘the progress on the health front is in line with our assumptions.’
- The recovery is expected to be consumption-led which means that consumer confidence will continue to be an important barometer to watch.Confidence will in turn remain tied to the successful management of the pandemic, which will help determine the extent to which households are willing to draw down their savings.
- The low and middle income tax offset payments will happen around July when people are putting in their tax returns and there will also be additional money in their tax return from having had the offsets apply this year.That in turn is expected to boost consumption later this year.(Budget 2020-21 announced that the government would bring forward stage two of the Personal Income Tax Plan from 1 July 2022 to 1 July 2020, increasing the low income tax offset and making the low and middle income tax offset available for the 2020–21 income year.)
- The relatively strong state of the housing market is likewise anticipated to support consumption.
- The labour market is recovering ‘surprisingly well,’ there is strong demand for detached housing, and public investment rates are high.
- Treasury will be looking for a pick-up in private business investment to get underway ‘in the next phase’ as the recovery strengthens.
- Although there are still expected to be around 1.3 million Australians on JobKeeper 2.0 at the end of March, the end of the program then is likely to lead to ‘what looks like a bit of a pause in the labour market.’ But Kennedy does not expect this ‘to disturb the trajectory of the unemployment rate coming down and more employment being generated across the course of the year.’
- On the future level of JobSeeker, Kennedy’s view was that ‘it's much less about its macroeconomic circumstances now, and it's much more about the decision that the government needs to make in light of the adequacy of the payment, how it intersects with incentives to work.’
The ABS said that the number of Australians returning from short-term overseas trips last year fell to its lowest level in 24 years (since 1987). That represented a drop of 75 per cent on 2019 figures, with 8.5 million fewer trips as pandemic restrictions bit. In the case of visitor arrivals, these were down almost 81 per cent on 2019 and at 1.8 million visitors were again the lowest since 1987.
Also from the ABS, an update on the count of Australian businesses. As of 30 June last year, there were 2,422,404 actively trading businesses in the Australian economy, a two per cent increase over June 2019. The entry rate was 14.5 per cent and the exit rate was 12.5 per cent (the entry and exit rates in 2018-19 were 15.4 per cent and 12.7 per cent, respectively, so both were down across the year).
A new report from RMIT on the Australian labour market and the skills and training needed to prepare workers and employees for the post-pandemic world (note, requires registration to access).
The Parliamentary Budget Office (PBO) has produced a useful chart pack (pdf) comparing the 2020-21 Budget to the 2019-20 MYEFO’s projections.
Michael Evans examines the future of GST revenues, considering the cases for removing exemptions, increasing the rate and tackling non-compliance.
The Economist magazine has a briefing on vaccine efficacy and new variants.
Buiter on Bitcoin. This is very much an economist’s take and, as I noted when we were discussing this on a recent Dismal Science podcast, while this is also pretty much where my own views rest, I’m not sure how much help this approach offers in understanding current market dynamics…
A new Brookings working paper looks at the relationship between technology, growth and inequality.
According to the Bloomberg 2021 Innovation Index, South Korea now holds the top global spot (mainly due to an increase in patent activity), followed by Singapore, while the United States has dropped out of the top ten to eleventh spot, after scoring poorly on Higher Education. Australia climbed one spot to 19th place. Note here that the ‘much of the Bloomberg data comes from before the virus crisis.’
From the FT, Martin Sandu in conversation with the economist Dani Rodrik. Rodrik argues that a key priority for policymakers in the future should be addressing what he thinks is a ‘chronic shortage of good jobs’. His suggested policy response includes improving so-called active labour market policies that help match employers and workers, a relative shift in the focus in industrial and regional policies away from investment and towards job creation and job quality, rethinking innovation policies to focus more on labour-augmenting technologies instead of labour-saving ones, and a set of international rules that allow countries to experiment in this way.
Also from the FT, divided views on prospects for an imminent oil supercycle. Boosters reckon a strong, stimulus-led economic recovery and low investment in production will trigger a sharp price hike. Sceptics point to spare capacity in OPEC, uncertainty over the strength of the recovery and adverse long-term trends.
The VoxEu / CEPR website has been publishing some interesting pieces on the economics of working from home (WFH) and in particular on how it is changing economic geography. Ramani and Bloom describe a ‘doughnut effect’ in the US data which show a reallocation of housing and office demand away from dense city centres toward city outskirts and suburbs, likely driven by a fear of crowds and the growth of WFH. Gupta, Peeters, Mittal, and Van Nieuwerburgh document similar results, again for the United States, finding for the top 20 US metropolitan statistical areas about 80 per cent of the urban rent premium associated with urban living has reversed while nine per cent of the urban price premium has reversed. They also suggest that the big divergence between rents and prices implies that a large chunk of the shift is expected to be temporary. De Fraja, Matheson, Rockey and Timms use UK data to look at the impact of WFH (or the ‘zoomshock’) on locally consumed services such as restaurants, hairdressers, and gyms. They find that office-dense city centres are experiencing considerable declines in output and employment while relatively less-densely populated suburbs are experiencing an increase in productive activities, with a reallocation of a significant portion of the demand for delis, cafés and hairdressers away from urban neighbourhoods with many of these services to suburban neighbourhoods with relatively few.
The EIU has released the latest (13th) edition of its democracy index, which takes into account the impact of government measures to tackle the pandemic. (Note, this is another report that requires registration to access). Australia retains its status as a ‘full democracy’ while the United States remains in the ‘flawed democracy’ category, where it has been since 2016.
A quick roundup of links on the Texas/US energy crisis. Here’s a quick take from Bloomberg, here’s the WSJ’s Q&A, and here is the view from The Economist.
Last time, the readings section included several links to the debate over the size of the Biden fiscal package in the United States. You can watch Paul Krugman and Larry Summers debate the matter here. Although note that if you’re a sceptic, you might find perhaps a bit too much agreement here, despite Summers having been cast as a leading nay-sayer in the broader debate.
Last week I also linked to David Runciman’s History of Ideas podcast. Here is Runciman being interviewed by Jeremy Paxman on the latter’s The Lock In podcast. Their conversation offers a nice summary of some of Runciman’s views (including his proposal for lowering the voting age to six!). While (a) it’s inevitably UK-centric and so much of this is not directly applicable to Australia and (b) I’m certainly not persuaded by everything here, I am quite sympathetic to the broad point that we could be a bit more open to experimentation in terms of refreshing the institutions we use to govern ourselves. Also, since hearing Runciman on the voting age question last year, I’ve had a little bit of fun using the general idea of lowering the voting age as a mini-test of the sincerity of those who like to argue that current policy – for example around public debt – does not pay enough attention to the needs of future generations. It has produced some interesting results so far. Let’s just say, some preferences are arguably not entirely consistent.