Hutchins Roundup: Biomedical research, remote work, and more 


What’s the latest thinking in fiscal and monetary policy? The Hutchins Roundup keeps you informed of the latest research, charts, and speeches. Want to receive the Hutchins Roundup as an email? Sign up here to get it in your inbox every Thursday. 

Biomedical research reduces mortality rates locally  

Rebecca McKibbin of the University of Sydney and Bruce A. Weinberg of Ohio State University study the effect of biomedical research on mortality rates from 38 diseases within the geographic area of research hospital markets. They find that, on average, one additional research publication about a specific disease reduces local mortality from that disease by 0.35% and a 1% increase in research funding reduces local mortality by 0.22%, relative to other markets. They also estimate that a $100,000 increase in research funding saves 401 years of life on average. The differential effects of novel research on mortality rates in markets where the research does or does not originate suggests that mortality rates overall could be improved by disseminating research more efficiently, the authors conclude.   

The rise in remote work mitigated output losses during the COVID-19 pandemic   

Janice Eberly of Northwestern University, Jonathan Haskel of Imperial College, and Paul Mizen of the University of Nottingham estimate that the decline in GDP across advanced economies would have been much larger had there not been a shift towards remote work at the onset of the pandemic. “Potential capital” — represented by the repurposing of workers’ homes and internet connections for work use — ensured that a large share of workers could remain productive despite the decline in workplace capital and labor utilization, the authors argue. The mobilizing of “potential capital” roughly halved the decline in GDP in the U.S. at the trough of the recession, they estimate.  Similar effects are seen in France, Germany, Italy, Japan, Spain, and the U.K. between Q1 and Q2 of 2020. Ignoring this contribution of home capital to output overstates how much total factor productivity (the efficiency with which labor and capital are used) rose over the pandemic. The authors also find that the shift to telework was largest in industries such as information services and finance, which had more communication technology infrastructure in place pre-pandemic. “The pandemic acted as a large shock and coordination device,” the authors note, “overcoming the collective action problem needed to demonstrate the possibility of working remotely.”   

Voluntary minimum wage announcements by large retailers lead to wage increases by other employers  

In recent years, several large retailers—Amazon, Walmart, Target, CVS, and Costco, together employing nearly 2% of the total US workforce—have announced wage increases, instituting company-wide minimum wages for their workers. Using job listings and worker salary reports, Ellora Derenoncourt from Princeton and co-authors find that these announcements prompted other employers to increase advertised wages sharply and persistently. For example, a 10% increase in hourly wages at Amazon led to a 2.3% increase in hourly wages at non-Amazon jobs in the same commuting zone. More generally, they find that after each large retailer’s announcement, increased wages at other employers bunched at the exact new minimum announced by the large retailer. The authors conclude that “these spillover effects provide direct evidence of labor market power and strategic interactions between firms in the low-wage sector.” Moreover, they find that these company-wide minimum wage announcements led to small declines in employment with magnitudes consistent with the recent minimum wage literature.   

Chart of the week: As the effect of pandemic-era federal transfer payments wanes, fiscal policy restrains GDP growth going forward 

Bar chart showing the percentage point contribution of fiscal policy to real GDP growth from 2000 Q1 to present

Quote of the week:  

“If well-designed and appropriately regulated, stablecoins could support faster, more efficient, and more inclusive payments options. However, absent appropriate safeguards, stablecoins present potential risks to users, the financial system, and the economy. These risks include uses for illicit finance, and risks to investor protection and market integrity. They also include … three major prudential risks: First, run risk, in which a loss of confidence in the reserve assets backing a stablecoin prompts mass redemptions and forces asset sales. In addition, concerns about a stablecoin could lead to loss of confidence in other stablecoins given less than-full-transparency on their reserve holdings. These runs and resulting asset sales could disrupt funding markets, depending on the size and types of assets sold,” says Nellie Liang, Under Secretary of the Treasury for Domestic Finance. 

“Second, payment system risks, including disruptions related to mechanisms that allow stablecoins to be stored or transferred among users. If stablecoins become widely used and the related service providers or technology are not resilient, this could lead to risks of substantial disruptions in a critical payments service. Third, there are additional risks linked to the potential for some stablecoins to rapidly scale due to network effects, for example. Very large stablecoins could raise concerns about systemic risk or concentration of economic power. Currently, prudential oversight of stablecoins is inconsistent, with some stablecoins effectively falling outside the regulatory perimeter. Even where the issuer is regulated, supervision may be fragmented due to the complexity of stablecoin arrangements.” 

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