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Author's Name: Stefanie Schurer
Date: Fri 08 May 2020

Stefanie Schurer

Professor Stefanie Schurer

Stefanie Schurer is a Professor of Economics in the School of Economics at the University of Sydney. She also leads the Economics of Human Development research node at the Charles Perkins Centre. She has produced some of the first insights on the stability and determinants of personality (non-cognitive skills-soft skills-life skills-character skills) over the lifecourse. Her current research program focuses on the impact of public policy on human development. She is a chief investigator on several linked administrative data projects in Australia. She uses such big data to study the consequences of Australia's key family, welfare, and medical policies for (Indigenous) children. She is a Visiting Scholar at the University of Chicago, a Research Fellow at the IZA Bonn and a member of the Human Capital and Economic Opportunity (HCEO) network. She is on the editorial board of the Journal of Economic Behavior & Organization. The recipient of numerous fellowships and research grants, she obtained a PhD and Masters degree in Economics from the Ruhr Graduate School in Economics (Germany) and the University of York (UK), respectively.


Subject Area Expertise

Microeconomics, Economics of Human Development, Public Policy

Website

Company website: www.stefanie-schurer.com


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Responses (4)


October Budget 2020 - preferred four programs

Poll 42 

"The October budget will see the government announce additional policies to support recovery.  Please nominate the four programs you think would be the most effective (for an intervention of a given size) over the next two years"

Photo Credit: Wes Mountain/The Conversation, CC BY-ND 

 

Infrastructure projects, Incentives for renewable energy, Incentives for cleaner fossil fuel energy, More funding for education and training

Australia would fare well if it adopted a New Deal type of investment strategy in its next budget to buffer the economic crisis and increase employment opportunities. Crisis spending should be used to invest in human capital development (education & training), large, socially-valuable infrastructure projects and in future-oriented industries. All of these investments will generate high returns in the future, while picking up the unemployed from the streets. Wage subsidies or cash transfers are very good short-term measures but they should not be used in the medium to longer term. They create disincentives for firms to be competitive and use resources in the most efficient way. In plain terms, they make business owners lazy. Incentivising investment in renewable/clean energy today will create jobs and ensure that Australian technology becomes competitive in this worldwide growing market. It will also ensure that Australia remains an attractive and clean place to live. Think of Norway, which generates all of its energy needed with hydropower. Excess energy is exported to other countries. Country is clean and livable. Large infrastructure investments can help to generate immediate employment, while creating a great public resource that pays dividends in the future. A very good example is the Hoover Dam, which was built during the Great Depression. It generated employment for over 20000 men during its 5-year construction. Why not building a massive dam in Australia like the Hoover Dam? Why not building a new Sydney Symphony Orchestra Building (like the "Berlin Philharmony"). Why not expanding the National Parks? Why not building Green Libraries all over Australia? Why not extending the National Broadband Network further, so that Telemedicine becomes feasible and successful? Why not building an Aboriginal History Museum dedicated to Aboriginal and Torres Straight Islander culture, art and economy? I thus support budget items that finance public investments that pay off in the future, and generate employment today.


Wage freeze for economic recovery

Poll 39

"A freeze in the minimum wage will support Australia's economic recovery"

Photo credit: Wes Mountain/The ConversationCC BY-ND 

 

Strongly disagree

9

I have understood the question as hypothetical, because the Fair Work Commission (FWC) has just increased national minimum wages by 3 percent, amounting to an extra $21.60 a week. This is a lower increase than the increases seen in the past two years and what the Australian Council of Trade Unions had requested (6 percent). Yet, the increase is substantially higher than what industry groups had hoped for (1.8-2 percent) and expected inflation for 2020-21 (experts predict 1.2-1.6 percent). From an economic perspective, the "increase" in the minimum wage, as opposed to a "freeze", is welcomed. My disagreement with the above statement and my support for an increase in the minimum wage is based on the following argument: Theoretically, minimum wages have ambiguous effects on aggregate demand. On the one hand, they could increase aggregate demand, as lower-income workers tend to have higher marginal propensities to consume. On the other hand, they may reduce employment and thus aggregate demand. As there is little empirical evidence for the latter proposition in the international and national literature and because of modest inflation expectations, I would have rejected the idea of freezing the minimum wage. Australia’s minimum wage is unlike the ones in the UK and US. Minimum wages exist in many industries and have a wide range, affecting almost 40% of Australian workers directly and indirectly. A large proportion of Australian workers - around 1 in 6 - will be directly affected by the minimum wage increases offered by the FWC, many of which are low-income earners. To support Australia’s economic recovery, it is critical to keep consumer spending high in general, but specifically of low-income earners who are more likely to spend their income gains. This could compensate for aggregate demand reductions associated with closed borders and a collapse of international tourism.


Social Distancing Measures, May 2020

Poll 38

"The benefits to Australian society of maintaining social distancing measures sufficient to keep R<1 for COVID-19 are likely to exceed the costs"

 

Strongly agree

9

In German we say: better a painful ending than an endless pain. Let me explain this. Short and medium term failure to eliminate, or at least slow down the spread of, the coronavirus virus will entail significant political, economic and social costs in the long run. Social distancing measures are no unjustified nuisance. Currently, they are the only option available to policy makers to curtail the capacity of the virus to spread ? measured by R, the so-called reproduction factor. The lower R, the lower is the spread of the virus. Some have argued that we should have gone for herd immunity to deal with the crisis. To achieve herd immunity, a certain share of the population must be infected and we need to assume that exposure to the coronavirus means protection against future infections. R determines how big that share must be. For instance, in a society under normal conditions, Covid's R ~ 2.5. This means that one person infected would spread it to 2.5 others. It has been widely discussed that about 60% of the population would need to be both infected and become immune to the virus (share=1-1/R). Would we like to expose 60% of the population to the virus, knowing that there is no treatment other than ventilation and that about 1% - although a contestable number - are likely to die? I do not think that policy makers would find volunteers for this experiment. Maybe it is better to make the virus behave a bit more like the flu, slow the speed of its spread to R~1.3. In this case, we would still need about 23% of the population to be exposed to achieve herd immunity. With the assumed case mortality rate, that would still imply a loss of life of 57,500 Australians (#deaths=1% of the 23% of population, ~25 million, who were exposed). If that number is still not acceptable, or if we cannot ensure that exposure means protection, which we cannot, then the only other option is virus elimination. This could be achieved, if R<1, or in plain words: every corona-infected person passes the virus on to less than one other person. Germany, which used very strict lockdown measures, achieved this for some time. When R was steadily < 1, and when a role-model testing and tracking system was in place, the Merkel government prepared for opening up the economy. Recent reports have shown that R has increased already to above 1 with the opening of the economy. The world has its eyes on Germany to learn how effective its strategy is to eliminate the virus. So, why do I think that keeping R<1, with the help of social distancing measures, outweighs the likely costs? To answer this question, one needs to think about both short-term and the long-term costs, and the dynamics in the lifecycle of a virus. The short-term costs are predictable. Australia will experience its first recession in almost three decades. Unemployment will rise, businesses will go bankrupt. Whether such recession will cause more deaths than Covid-19, cannot be answered yet. The good news is that the overall evidence from international data, and work that we have produced for Australia, suggests that recessions, if anything reduce mortality. The other good news is that Australia can buffer the economic consequences of the temporary hibernation of its economy through expansive fiscal policy. Expectations of a recession and the practical consequences of the lockdown will also entail psychic costs. They will certainly strain the emotional health of individuals and families, in particular the most vulnerable segments of the population: the old because of loneliness, and the children because of exposure to stressed family environments, a breeding ground for violence and maltreatment. These psychic costs must be taken very seriously by policymakers. Increased resource allocations to mental health and family service providers will be critical, so that they can increase their support services and target where advisable. A policy alternative that avoids, instead of alleviates, such economic and psychic short-term costs, is not advisable. The alternative would have been to have no social distancing measures at all, or to relax those in place prematurely. By prematurely, I mean before R is below 1 for extended periods of time (which scientists say is now happening in Australia). If social distancing measures were relaxed when R were 1 or greater, it would have the consequence that new hot spots of infections and deaths will emerge months down the track. It could even be that the virus comes back in full force, with reproduction rates way above 2. This would force politicians to reintroduce even harsher social distancing measures than the ones we have experienced in the past ten weeks. Such measures would certainly extinguish any revived economic activity. Theoretically, this could happen several times into the future, stretching out the battle against Covid-19 over years. Like a yoyo, the economy would bounce up and down between lockdown and easing, forcing companies, employers, employees, families, carers, and essential service providers to adapt over and over again. The uncertainty would be an emotionally draining and financially expensive exercise. In modern democracies, it is excruciatingly painful for politicians to restrict citizens? basic human rights. It is unlikely to see such rights restricted on a recurring basis without serious social unrest. Although Australia is a rich country, the economy cannot afford to roll out job and business rescue programs, the current one valued at 16% of GDP, whenever a new infection hotspot requires yet another hibernation of the economy. Thus, we must eliminate the virus now. A painful ending, achievable through keeping R<1, is economically and socially less costly, than the endless pain of allowing R to float freely above 1.


Government Debt during the COVID19 Crisis

Poll 40

"Governments should provide ongoing fiscal support to boost aggregate demand during the economic crisis and recovery, even if it means a substantial increase in public debt"

Photo Credit: Wes Mountain/The Conversation, CC BY-ND 

 

Strongly agree

9

Australia has one of the lowest government debts -- as percentage of GDP -- among OECD countries. In December 2019, this debt ratio was 45%. In comparison to Germany (60%), the UK (81%), EU (80%) and the US (107%), Australia's government debt ratio is low. It is similar to Switzerland's and Norway's (~41%), two exceptionally rich countries with a healthy and functional public sector and a thriving private sector. Thus, Australia will be able to increase its public debt substantially, without compromising its financial health.