April 2025 Brief Rollup

APRIL 2025

Economic Research Briefs

bfi.uchicago.edu

The latest commentary and analysis from BFI’s leading scholars in shorter, digestible forms.

Contents Boosting Young Children’s Math Skill with Technology in the Home Environment; A Digital Library for Parent-Child Shared Reading Improves Literacy Skills for Young Disadvantaged Children; Priming Parental Identity: Evidence from Experimental Data

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Effects of Unemployment Insurance for Self-Employed and Marginally-Attached Workers

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UChicago Scholars: Daniela Bresciani Andaluz, Ariel Kalil, Haoxuan “Noah” Liu, Susan E. Mayer, Rohen Shah, Derek Rury

UChicago Scholar: Dmitri Koustas

Drive Down the Cost: Learning by Doing and Government Policies in the Global EV Battery Industry

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UChicago Scholar: Hyuk-soo Kwon

Income Equality in the Nordic Countries: Myths, Facts, and Lessons

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UChicago Scholar: Magne Mogstad

The Price of Faith: Economic Costs and Religious Adaptation in Sub-Saharan Africa

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UChicago Scholar: Eduardo Montero

Central Bank Communication with the Polarized Public

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UChicago Scholar: Michael Weber

How Costly Are Business Cycle Volatility and Inflation?

A Vox Populi Approach

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UChicago Scholar: Michael Weber

VIEW ALL BRIEFS

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RESEARCH BRIEF • MARCH 2025

Boosting Young Children’s Math Skill with Technology in the Home Environment; A Digital Library for ParentChild Shared Reading Improves Literacy Skills for Young Disadvantaged Children; Priming Parental Identity: Evidence from Experimental Data Based on BFI Working Paper No. 2025-28, “Boosting Young Children’s Math Skill with Technology in the Home Environment,” by Daniela Bresciani Andaluz, Ariel Kalil, Haoxuan Liu, Susan E. Mayer, and Rohen Shah, University of Chicago; BFI Working Paper 2025-127, “A Digital Library for Parent-Child Shared Reading Improves Literacy Skills for Young Disadvantaged Children,” by Kalil, Liu, Mayer, Shah, and Derek Rury, University of Chicago; and BFI Working Paper No. 2025-26, “Priming Parental Identity: Evidence from Experimental Data,” by Bresciani, Kalil, Liu, and Mayer

Students with stronger reading and math skills tend to perform better in school and earn higher incomes in adulthood. It is concerning, then, that children from low-income backgrounds enter school with weaker skills, on average, than their higherincome peers. Researchers theorize that a key driver of these early gaps is differences in parental engagement, with lower-income parents less frequently observed to engage with their children.

math skills; in A Digital Library for Parent-Child Shared Reading Improves Literacy Skills for Young Disadvantaged Children, the authors similarly test the effect of providing a digital library for parent-child shared reading on the literacy skills of low-income children; and in Priming Parental Identity: Evidence from Experimental Data, the authors use identity priming to encourage greater involvement in their children’s learning.

Motivated by these disparities, the papers summarized here examine interventions designed to enhance parental engagement. In Boosting Young Children’s Math Skill with Technology in the Home Environment, the authors provide digital apps and analog math materials to preschool aged children from diverse socioeconomic backgrounds and test the effect on children’s

Boosting Young Children’s Math Skill with Technology in the Home Environment In the United States, tailored programs designed to boost child math skills range from light-touch approaches (such as ones that send tips by text to parents about child development) to more complex

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and targeted approaches that train practitioners to visit and coach parents in their homes. Few parent interventions designed to boost children’s math skills have been experimentally evaluated in large and diverse samples.

In this experiment, the authors recruited families from 35 preschools throughout the City of Chicago to participate in About Time, a six-month randomized trial (RCT) (RCT) aimed at boosting randomized control trial parent-child engagement in math learning. The authors randomly assigned participants to one of three groups: a control group, a treatment group receiving a digital tablet with high-quality math apps, and another treatment group receiving equally high-quality analog math materials.

The authors assessed children’s math skills at the outset of the intervention as well as after six months. They also collected a selfreported measure of parental time spent on math engagement, along with survey measures of parents’ attitudes and beliefs. The authors compared these data across their three experimental groups, and found the following: •

•

A Digital Library for Parent-Child Shared Reading Improves Literacy Skills for Young Disadvantaged Children On any given day, 29% of college-educated mothers report reading to their children, compared to only 12% of mothers with a high school diploma and 7% of mothers with less than a high school education. This educationbased gap in reading is the largest among early childhood investment activities linked to cognitive skill development.

To examine ways to address this disparity, the authors conducted an RCT with 300 low-income families in Chicago. The study tested whether access to a digital library could increase reading frequency and improve child literacy outcomes. The intervention lasted 11 months, with families randomly assigned to one of four groups, detailed below.

In two-parent households, children who received math apps improved their math skills by 0.23 standard deviations compared to the control group. Providing analog math materials did not improve children’s math skills.

The authors theorize that math apps were particularly effective in two-parent households because these environments may provide more support for learning, amplifying the benefits of parental engagement (consistent with Cunha and Heckman, 2007).

Providing math learning apps to families can be an effective way to moderately improve preschool-aged children’s math skills. These findings support efforts to expand at-home use of high-quality math apps, particularly as educational technology remains in the early stages of adoption in home environments.

Increasing access to such tools could help enhance early math development and narrow achievement gaps before children enter school.

Control group

Received an activity book with crayons and stickers

Treatment 1

Received a tablet loaded with a digital library called Children and Parents Engaged in Reading (CAPER)

Treatment 2

Received the CAPER tablet along with weekly text messages reminding parents to read to their child

Treatment 3

Received the CAPER tablet along with weekly messages to set a goal for reading from the digital library in the week ahead.

The authors measured children’s literacy skills before and after their intervention. They compare between their four experimental groups, and find the following: •

Access to the digital library alone led to a significant improvement of 0.29 standard deviations in children’s literacy skills compared to families who did not receive it.

•

The behavioral messages offered no additional benefit beyond the library itself.

This experiment demonstrates the potential of technology to improve the literacy skills of low-

randomized controlled trial (RCT): a study design where participants are randomly assigned to either a treatment group or a control group to objectively measure the effects of an intervention

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Week for Experiment 1 Figure 1 · Redemption Redemption RateRate Each Each Week for Experiment 1 50% Accumulated Redemption Rate Parental Identity Group 40

Hourly Wage Group

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This figure shows the accumulated rates byrepresent week for each treatment Note: This figureNote: shows the accumulated redemption rates by week for eachredemption treatment group.

The stars the significance level of thegroup. redemption rate difference compared to the control group.

The stars represent the significance level of the redemption rate difference compared to the control group.

income children. Digital libraries offer several advantages over large-scale programs that provide physical books to young children. A digital library can provide access to a significantly larger and more diverse collection of books, which can be updated and adjusted as children grow, offering greater flexibility and scalability.

Priming Parental Identity: Evidence from Experimental Data Parents whose parental identities are stronger— i.e., those who place a greater emphasis on their roles as parents as opposed to other roles in their lives—tend to invest more in their children’s development. In the final paper in this trio, the authors examine whether priming parental identity affects parents’ real-world decisions.

The authors conduct two experiments using existing samples of Chicago parents who had previously received digital gift cards as compensation for participating in past studies. In each experiment, parents are randomly assigned to either a treatment or control group and receive weekly text messages for four weeks encouraging gift card redemption.

In both experiments, the treatment messages appeal to parental identity by encouraging parents to redeem the gift card to buy something for their children. The control group messages

vary between the two experiments: In Experiment 1, the control group receives a generic reminder to redeem their gift card, while in Experiment 2, the control group message is designed to prime self-identity, encouraging parents to use the gift card for themselves. The authors then compare gift card redemption rates across the experimental groups and find the following: •

A text message highlighting what parents could purchase for their children with the gift card significantly increased the redemption rate by 45% compared to a generic reminder to redeem the gift card. The same prompt increased the redemption rate by 39% compared to a message encouraging parents to think about what they could buy for themselves.

•

Parents in the treatment group who received parental identity messages redeemed their gift cards at different stores compared to parents in the control group, suggesting that the parental identity message may have influence parents’ shopping decisions. (The authors caution, however, that since they lack data on the specific items purchased in these stores, they cannot directly show that parents who received parental identity messages were more likely to buy products for their children.)

By demonstrating that parental identity can be effectively primed through low-cost messaging,

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Redemption Week for Experiment 2 Figure 2 · Redemption RateRate Each Each Week for Experiment 2 60% Accumulated Redemption Rate

Parental Identity Group

Self Identity Group

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Note: This figure shows the accumulated redemption rates by week for each treatment group. The stars represent the significance level of the redemption rate difference compared to the control group.

Note: This figure shows the accumulated redemption rates by week for each treatment group.

The stars represent the significance level of the redemption rate difference compared to the control group.

this research contributes to a growing body of literature on identity and behavioral economics.

These results hold promise for designing scalable interventions to encourage behaviors that promote child well-being, such as parental engagement, healthcare utilization, or savings for education.

Future research could explore how identity

priming interacts with other contextual factors, such as socioeconomic status or cultural norms, to better understand its potential applications across diverse settings. Additionally, studying the long-term effects of identity-based interventions would offer insights into whether the observed behavioral changes persist over time.

READ THE WORKING PAPER

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NO. 2025-28 · FEBRUARY 2025

Daniela Bresciani Andaluz

Boosting Young Children’s Math Skill with Technology in the Home Environment bfi.uchicago.edu/working-papers/boosting-young-childrensmath-skill-with-technology-in-the-home-environment NO. 2025-27 · FEBRUARY 2025

A Digital Library for Parent-Child Shared Reading Improves Literacy Skills for Young Disadvantaged Children bfi.uchicago.edu/working-papers/a-digital-library-forparent-child-shared-reading-improves-literacy-skills-foryoung-disadvantaged-children NO. 2025-26 · FEBRUARY 2025

Priming Parental Identity: Evidence from Experimental Data

BFI Research Professional, Harris School of Public Policy

Ariel Kalil

Daniel Levin Professor, Harris School of Public Policy

Haoxuan “Noah” Liu

PhD Student, Harris School of Public Policy

Susan E. Mayer

Professor Emeritus, Harris School of Public Policy

Rohen Shah

PhD Student, Harris School of Public Policy

Derek Rury

Postdoctoral Researcher (Instructor), Harris School of Public Policy

bfi.uchicago.edu/working-papers/priming-parental-identityevidence-from-experimental-data

Written by Abby Hiller • Designed by Maia Rabenold

7

RESEARCH BRIEF • MARCH 2025

Effects of Unemployment Insurance for SelfEmployed and Marginally-Attached Workers Based on BFI Working Paper No. 2025-12, “Effects of Unemployment Insurance for Self-Employed and Marginally-Attached Workers,”

by Emilie Jackson, Michigan State University; Dmitri Koustas, University of Chicago; Andrew Garin, Carnegie Mellon University

Expanding unemployment insurance through Pandemic Unemployment Assistance led self-employed individuals, gig workers, and new labor market entrants to reduce their earnings by $0.30, $0.48, and $0.22 for every additional dollar of UI received, respectively. UI benefits reduced mortality among older gig workers.

Unemployment insurance (UI) serves as a critical Earnings Figure Response to $1 Increase in UI 1 · Earnings Response to Benefit $1 Increase in UI Benefit social safety net, benefiting both private and social 0.2 Change in Earnings welfare. However, traditional UI programs exclude several vulnerable worker groups, including the Reduction due to PUA self-employed, gig workers, and new labor market entrants. Extending UI to these workers presents 0 challenges, particularly in distinguishing voluntary from involuntary job separations. For instance, a self-employed worker might reduce work hours strategically to qualify for UI benefits, raising -0.2 concerns about moral hazard. hazard This paper examines the largest expansion of UI coverage since the program’s inception in 1935: Pandemic Unemployment Assistance (PUA), which extended UI benefits to self-employed

Placebo Estimates -0.4 2017-18 Platform Gig

2018-19 Other SE

2019-20

High School Graduation Cohort

moral hazard: in this context, a situation where a worker changes their work or job search behavior due to the Note: This figure shows the change in total earnings in response to a $1 increase in UI benefit, Note: This figure shows the change in total earnings in response to a $1 increase in UI benefit, unadjusted for differences in UI take-up, where the outcome in each regression is calculated availability of benefits unadjusted for differences in UI take-up, where the outcome in each regression is calculated over the years indicated on the x-axis. over the years indicated on the x-axis.

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individuals, gig workers, and recent high school graduates entering the labor force during the COVID-19 pandemic. The authors use crossstate variation in PUA implementation to assess its effects on labor market earnings, education choices, and mortality using a spatial spatial regression regression discontinuity design. They find the following: •

Every additional dollar of UI benefit for selfemployed workers reduced earnings by $0.21.

After accounting for differences in UI take-up rates, self-employed workers reduced their earnings by $0.30, with even larger reductions among gig workers ($0.48). Recent high school graduates reduced their earnings by $0.22 for every additional dollar of UI received.

•

Self-employed workers in industries less impacted by the pandemic exhibited larger earnings reductions, suggesting that UI expansion may have incentivized some individuals to withdraw from the labor force.

•

UI had notable health effects: an additional $5,000 in PUA benefits reduced mortality by 0.36 percentage points among older gig workers. There were no effects on mortality outside the gig economy and no effects on college attainment.

The findings underscore the trade-offs involved in expanding UI to non-traditional workers.

While PUA provided an essential safety net during the pandemic, it also altered labor market participation, particularly among workers with flexible employment arrangements. Policymakers should consider targeting future UI expansions based on industry conditions to minimize moral hazard while maintaining essential protections for workers facing economic shocks.

spatial regression discontinuity: a research design that exploits differences across geographic borders to estimate causal effects while holding local economic conditions constant

READ THE WORKING PAPER NO. 2025-12 · JANUARY 2025

Effects of Unemployment Insurance for SelfEmployed and Marginally-Attached Workers bfi.uchicago.edu/working-papers/effects-ofunemployment-insurance-for-self-employed-andmarginally-attached-workers

ABOUT OUR SCHOLAR

Dmitri Koustas

Assistant Professor, Harris School of Public Policy

Written by Abby Hiller • Designed by Maia Rabenold

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RESEARCH BRIEF • MARCH 2025

Drive Down the Cost: Learning by Doing and Government Policies in the Global EV Battery Industry Based on BFI Working Paper No. 2025-15, “Drive Down the Cost: Learning by Doing and Government Policies in the Global EV Battery Industry,” by Panle Jia Barwick, University of Wisconsin-Madison; Hyuk-soo Kwon, University of Chicago; Shanjun Li, Cornell University; and Nahim Bin Zahur, Queen’s University

The learning rate for EV battery production is 7.5%, meaning costs drop by 7.5% when production experience doubles. Learning by doing enhances EV subsidies’ impact and creates global spillovers.

Between 2010 and 2020, the cost of electric vehicle (EV) batteries dropped by nearly 90%, reducing a major obstacle to widespread EV adoption. Industry experts attribute much of this decline to learning-by-doing (LBD), where production experience leads to lower costs through improved efficiency and reduced waste.

However, other factors, such as economies of scale and technological advancements, also play a role. In this paper, the authors quantify the impact of LBD on declining EV battery costs and examine how LBD influences the effectiveness of industrial policies like consumer subsidies and local content requirements.

The authors use a detailed dataset covering global EV sales, vehicle characteristics, battery suppliers, and financial incentives to build a structural model of the EV market. Their model estimates battery costs by analyzing EV prices, sales trends, and the evolving partnerships between EV manufacturers and battery suppliers.

It also accounts for how consumers with different preferences make purchasing decisions and how EV makers and battery suppliers set prices. The

Figure 1 · Effect of Subsidies and LBD on Global EV Sales Effect of Subsidies and LBD on Global EV Sales 3M in EV Sales (Units)

Subsidy & LBD

LBD Only 2M

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Note: This figure illustrates total EV sales across the top 13 EV countries under various scenarios, as labelled.

Note: This figure illustrates total EV sales across the top 13 EV countries under various scenarios, as labelled.

model reveals the following concerning the role of LBD in battery cost reductions and its broader implications for EV policy effectiveness: •

The learning rate is estimated to be 7.5% after controlling for technological advancements, experience in EV assembly, input costs, and economies of scale. This implies that doubling battery production experience would reduce unit production costs by 7.5%.

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•

•

LBD greatly amplifies the sales impact of EV subsidies through positive feedback loops. In the absence of LBD, subsidies across different countries are estimated to increase cumulative global EV sales by 29.9% during the sample period, consistent with findings in existing studies that focus on the short-term effects of EV purchase subsidies. When both consumer subsidies and LBD were in effect, global EV sales surged by 170% relative to the baseline with neither subsidies nor LBD. This combined effect is 60% greater than the sum of the effects from subsidies and LBD individually, highlighting their complementarity.

Consumer subsidies in one country generate global spillovers through LBD in battery production, but the magnitude of spillovers hinges critically on the nature of the supply chain network and trade patterns. For example, the estimated $13.10 billion in U.S. subsidies generated $16.47 billion in global welfare gains, measured as the sum of consumer surplus and firm profit on a global scale, net of subsidy expenditure. The U.S. (and Canada) captured 49% of these welfare gains, as the interaction between subsidies and LBD significantly reduced input costs (batteries) for domestic EV producers and lowered vehicle prices for domestic consumers. U.S. subsidies also benefited battery suppliers in Japan and South Korea, which captured 28% of the global welfare gains. Europe also benefited significantly from

READ THE WORKING PAPER NO. 2025-15 · JANUARY 2025

Drive Down the Cost: Learning by Doing and Government Policies in the Global EV Battery Industry

U.S. subsidies; in contrast, China captured only 3% of the global gains. This modest share reflects China’s limited trade in EVs and EV batteries with foreign countries during the authors’ sample period.

•

Upstream LBD creates significant externalities through the supply chain, with upstream firms capturing only a small fraction of the associated economic benefits due to the oligopolistic nature of the supply chain.

•

Lastly, China’s whitelist policy benefited domestic battery suppliers at a cost to other countries. The EU, Japan and South Korea, and the U.S. and Canada collectively incurred $5.88 billion in welfare losses. This was driven by a shift in global battery production from more efficient Japanese and South Korean battery suppliers to (at the time) higher-cost Chinese suppliers. Had the whitelist policy been delayed to 2021-2024, China would have faced net losses, as consumer welfare losses would have outweighed the gains to battery suppliers. The negative impact on other countries would have been smaller.

While prior research has linked industrial policies, such as purchase subsidies, to EV innovation, this study is the first to integrate learning by doing (LBD) into EV market analysis. Prior studies may underestimate the full impact and costeffectiveness of subsidies by overlooking LBD and its reinforcing effect on lower battery costs and increased EV adoption.

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Hyuk-soo Kwon

Assistant Professor, Harris School of Public Policy

bfi.uchicago.edu/working-papers/drive-down-the-costlearning-by-doing-and-government-policies-in-the-globalev-battery-industry

Written by Abby Hiller • Designed by Maia Rabenold

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RESEARCH BRIEF • MARCH 2025

Income Equality in the Nordic Countries: Myths, Facts, and Lessons Based on BFI Working Paper 2025-25, “Income Equality in the Nordic Countries: Myths, Facts, and Lessons,” by Magne Mogstad, University of Chicago; Kjell G. Salvanes, Norwegian School of Economics; and Gaute Torsvik, University of Oslo

Income equality in the Nordic countries results from a severe compression of hourly wages that reduces the returns to labor market skills; this is achieved through a wage bargaining system with strong coordination within and between industries.

Recent calls for economic and social equality within developed countries, including the United States, have brought renewed attention to Nordic countries, where equality is often equated with such policies as subsidized and readily available daycare, generous parental leave policy, universal health care, free college, and strong labor rights and unions.

If these countries can have low inequality and economic growth, the reasoning goes, so can we.

However, how well do these Nordic admirers understand the model employed by Denmark, Finland, Norway, and Sweden?1 To replicate the Nordic experience, is it simply a matter of implementing certain policies? What explains the Nordic model? This paper combines theory and evidence to examine these and related questions, and to address the challenges for those hoping to emulate the Nordic experience.

Before describing the authors’ analysis, let us first broadly review the Nordic economies and what makes them distinctive. First, just 26 million people live in the four countries, with around 10 million in Sweden, roughly twice the size of the other 1 This work focuses on the four largest countries of the Nordic Region, which in total includes Denmark, Norway, Sweden, Finland, and Iceland, as well as the Faroe Islands, Greenland, and Åland. Nordic countries are often conflated with Scandinavia, which typically refers to Denmark, Norway, and Sweden.

Figure 1 · Timeline of Introduction of Social Policies in Nordic Countries (1950-2000)

Timeline of Introduction of Social Policies in Nordic Countries (1950-2000) Norway 1956 1957

1975 1977

Sweden 1955

1960

1974 1975

Finland 1962 1964

1973 1974

Denmark 1956

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Universal Maternity Leave

Universal Daycare

Universal Social Security

Universal Health Care

Note: This timeline represents the introduction of key social policies in the Nordic countries.

Each point the year a policy was Note: Thisreflects timeline represents theenacted. introduction of key social policies in the Nordic countries.

Each point reflects the year a policy was enacted.

Nordic countries. Though commonly perceived as homogeneous, in 2021 both Norway and Sweden had proportionally larger foreign born populations than the United Kingdom and United States. Nordic residents are also relatively well-educated and healthy, and they enjoy life in countries with high quality-of-life indicators.

Finland exports just under 50% of its GDP, while the other three export half or more of the goods and services they produce. Finland’s exports include machinery, electronics, paper products, and chemicals; Norway’s exports are predominantly

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Figure 2Trends · Trends Union Density and Barganing Coverage in in Union Density and Barganing Coverage A) Labor Union Density

B) Collective Bargaining Coverage

100% Union Density

100% Bargaining Coverage

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Note: This the figure shows fraction of union members (Panel A) and the fraction of workers covered by collective bargaining agreements (Panel B) 2020 for the United States and Note: This figure shows fraction ofthe union members (Panel A) and the fraction of workers covered by collective bargaining agreements (Panel B) between 1980 and between 1980 and 2020 for the United States and selected European countries. “Continental Europe” includes France, Germany, Spain, and Portugal, and selected European countries.

“Continental Europe”Sweden, includes Denmark, France, Germany, Spain,As and Portugal, and A, “Nordic Countries” includes Sweden, Denmark, andwith Finland.

“Nordic Countries” includes Norway, and Finland. shown in Panel unionization varies widelyNorway, across advanced economies, the As shown in Panel A, unionization varies widely across economies, with the highest density rates the Nordic countries several times the differences lowest density ratesfrom in the1980 United highest density ratesadvanced in the Nordic countries reaching several times the in lowest density rates inreaching the United States.

These expand to States. These differences expand from 2018, 1980 to as the of U.S. U.K.workers union workers has steadily declined over time. as 2018, the share ofshare U.S. and U.K.and union has steadily declined over time.

oil, gas, and fish; Sweden exports a substantial amount of manufactured goods; and Denmark is a leading exporter of chemical products, particularly pharmaceuticals.

Average incomes in the Nordic countries are above the Organization for Economic Cooperation and Development (OECD) average and not far below the average income in the United States. Regarding GDP per capita (a key standard-of-living indicator), when this measure is decomposed for labor productivity (as proxied by GDP per work hour, and labor quantity as measured by work hours per capita), the Scandinavian trio (Denmark, Norway, and Sweden) is at least as productive as the United States, and considerably more productive than the United Kingdom and the OECD average.

Finally, on average, Nordic citizens work fewer hours per year than their OECD counterparts. Employment rates and labor force participation rates, though, are relatively high. Indeed, the employment rate in the Nordic countries is higher than those in the United Kingdom and United States, and the OECD average, a difference that largely stems from a higher rate of female labor force participation.

With that as background, what distinguishes the social and economic model of the Nordic countries? The authors offer the following four pillars: 1.

Significant public investment in family policies, education, and health services;

2.

coordinated wage-setting within and across industries;

3.

substantial expenditure on social insurance to safeguard against income losses due to unemployment, disability, and illness; and

4. high and progressive taxation of labor income, complemented by subsidies for services that support employment.

These pillars are fully described in the working paper, and Figure 1 illustrates the development of core policies that address these elements. The range of services provided by these and other programs are meant, in part, to provide equality of opportunity.

How successful are these programs? The authors present key facts while also debunking myths and misconceptions about income inequality in the Nordic countries, in comparison with the United Kingdom and United States, which both exhibit high levels of income inequality. They find the following: •

A more equal predistribution of earnings (for example, through minimum wages, access to education, and labor market regulations, among others), rather than income redistribution, mainly explains the lower income inequality in the Nordic countries.

•

Equality in wage rates, not work hours, primarily explains lower inequality in the Nordic countries.

This is largely driven by wage compression, meaning there is a small wage gap among employees, regardless of their position and seniority.

•

Conventional wisdom aside, hourly wage compression within gender, not between men and women, is a key component of income equality in the Nordic countries. For example, although the gender gap in hourly wages is about 30 percent lower in the Nordics than in the United States, it explains less than 2 percent of the difference in the dispersion of hourly wages between the Nordic countries and the United States.

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What explains these facts? The authors analyze three common hypotheses, giving prominence to the third:

compression explains most of the social equality within Nordic countries.

Governments spend heavily on children and families through subsidized daycare, education and health programs, thus equalizing the distribution of skills and human capital among children of disadvantaged families.

With that mystery solved, another looms. What impact does coordinated wage compression have on productivity and growth? If other countries, including the United States and United Kingdom, adopted wage compression policies, would their economies remain as productive and strong? Here, the evidence is less clear. One view holds that the Nordics benefit because less-equal countries have more incentive to innovate and take chances, which redounds to the Nordics’ benefit. If true, then if all countries followed the Nordic model, innovation would suffer, and economic growth would decline across the globe.

Reality check: Most research evaluating the causal effects of such programs suggests that effects are relatively modest. Indeed, the observed distributions of education and skills are relatively similar between the Nordic countries, the United States and United Kingdom. In contrast, the wage premium for education and skills is twice as large in the United States and United Kingdom.

Although the Nordics have relatively high- and progressive-income taxes, which might discourage labor supply, they also subsidize services that are arguably complementary to working, such as daycare and other family friendly policies. These policies may both increase labor force participation and reduce inequality in hourly wages.

Reality Check: A growing body of research reveals that the impact of subsidized services is small.

For example, subsidized daycare mostly replaces other forms of out-of-home care used by working mothers, resulting in little to no increase in maternal employment or earnings. (The authors are quick to note that this is not an argument against such policies, as their benefits may exceed costs, even with minimal impact on income inequality.)

Income equality in the Nordics is primarily attributed to a two-tier collective bargaining structure, starting with sectoral bargaining of wage floors or base wages, followed by local bargaining at the firm level.

Importantly, there is strong wage coordination both between and within industries.

Reality Check: The authors concur. Both theory and data suggest that this coordination significantly compresses the distribution of wages compared to the distribution of labor productivity, and this wage

READ THE WORKING PAPER NO. 2025-25 · FEBRUARY 2025

Income Equality in the Nordic Countries: Myths, Facts, and Lessons bfi.uchicago.edu/working-papers/income-equality-in-thenordic-countries-myths-facts-and-lessons

In contrast, another view holds that wage compression and social insurance stimulate innovation, productivity, and growth because, for example, they increase the cost of low-skilled labor and lower the price for highskilled workers, thereby affecting the profitability of new technology and driving out inefficient firms. In effect, wage compression and social insurance serve as mechanisms for sharing risk and compensating workers affected by the negative effects of structural change, thus reducing social and political barriers to new technology, international trade, and competition in domestic markets.

Research has yet to resolve this puzzle, with most evidence either correlational or circumstantial. To adequately address these and related questions will entail advances in both theory and measurement, including a tighter connection between data and theory. Such a connection is missing in most labor economics, the authors argue, and they offer a critique of current research agendas, many of which focus on micro data to explain a part of the puzzle. Their own research prescription includes the development of models in which skills, labor supply (including international migration), capital investments, wages, and profits are determined simultaneously. Without such models, there is little hope of understanding whether the Nordic model is replicable, or even desirable.

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Magne Mogstad

The Gary S. Becker Distinguished Service Professor, Kenneth C. Griffin Department of Economics

Written by David Fettig • Designed by Maia Rabenold

14

RESEARCH BRIEF • MARCH 2025

The Price of Faith: Economic Costs and Religious Adaptation in Sub-Saharan Africa Based on BFI Working Paper No. 2025-33, “The Price of Faith: Economic Costs and Religious Adaptation in Sub-Saharan Africa,”

by Eduardo Montero, University of Chicago; Dean Yang, University of Michigan; and Triana Yentzen, University of Michigan

When the opportunity costs of being a Seventh Day Adventist in Sub-Saharan Africa increase, membership growth declines, and existing members report lower satisfaction.

Local churches respond by establishing new educational and health institutions, and members reduce adherence to the church’s healthy living tenets.

Prior research shows that religious institutions play a major role in shaping economic behaviors, social norms, and development outcomes worldwide. But what happens when religious membership (or belief) entails economic costs?

For example, the Seventh Day Adventist (SDA) church prohibits the production of tobacco, coffee, and tea, effectively excluding its members from a major sector of the local agricultural economy in Sub-Saharan Africa.

In this paper, the authors examine how opportunity costs of religious membership opportunity costs influence membership in the SDA church, and whether and how local churches adapt to these economic realities. Importantly, the opportunity cost of joining the SDA church due to its production prohibitions varies across different regions—with higher costs in areas that are more suitable for prohibited crops—as well as over time—with higher costs at times when export prices for prohibited crops are higher. Using data on potential crop yields and regional export prices, the authors construct detailed measures of the opportunity costs of SDA membership for sub-national localities across Sub-Saharan

Africa from 1991 to 2022. They then combine these opportunity cost measures with public data on SDA membership and other local statistics, uncovering the following: •

Increases in opportunity costs lead to substantial declines in new church memberships. During periods of non-zero opportunity costs, net membership growth falls by 10.4 percentage points on average, with the decline reaching 19.3 percentage points in periods when opportunity costs are in the top quartile (of the non-zero opportunity cost distribution).

•

In addition, data from SDA member surveys reveal that when the economic costs of membership rise, members report less satisfaction with and less long-run commitment to the church.

•

In terms of local church responses, increases in opportunity costs lead to the establishment of new educational and health institutions.

These institutions may be intended to help attract new members, as well as offset opportunity costs for existing members.

opportunity cost: the loss of potential gain from other alternatives when one alternative is chosen

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Figure 1 · Opportunity Cost of SDA Crop Prohibitions by SDA Locality Opportunity Cost of SDA Crop Prohibitions by SDA Locality A) 1995

B) 2011

C) 2020

Cost of SDA Prohibitions by SDA Locality $0

$0-1

$1-10

$10-50

$50-700

Note: These maps show the average opportunity cost (in 2010 US dollars per hectare per year) of adhering to SDA prohibitions on production of tobacco, coffee, and tea. Areas colored in darker

Note: These maps show the average (in 2010 US dollars per hectare per year) of adhering to SDA prohibitions on production of tobacco, coffee, and tea. Areas colored in darker shades of blue represent places whereopportunity adherence iscost more costly. shades of blue represent places where adherence is more costly.

•

Local churches also appear to respond to increased opportunity costs by reducing the emphasis placed on the church’s healthyliving prescriptions, which undergirds the prohibition on coffee, tobacco, and tea. When opportunity costs rise, SDA members report hearing fewer messages about the church’s “holistic living” prescriptions from church pastors. In addition, increases in opportunity costs lead to more violations of the church’s prescriptions on healthy living, namely, more consumption of alcohol and tobacco.

Taken together, the results highlight how individuals take opportunity costs of membership into account when deciding whether to join a new religion, while local churches, in return, take measures to balance tradition and adaptation in response to economic conditions. These findings have implications beyond the specific context studied here. First, they demonstrate how economic incentives can drive religious change through multiple channels: directly affecting individual choices about religious participation,

READ THE WORKING PAPER NO. 2025-33 · FEBRUARY 2025

The Price of Faith: Economic Costs and Religious Adaptation in Sub-Saharan Africa bfi.uchicago.edu/working-papers/the-price-of-faith-economiccosts-and-religious-adaptation-in-sub-saharan-africa

and indirectly by inducing institutional adaptation. Second, they reveal religious institutions as dynamic actors that appear to strategically adjust their practices and messaging in response to local conditions, while maintaining their fundamental identity. This adaptability may be particularly important in developing regions where religious prescriptions can significantly impact economic livelihoods.

More broadly, this research illuminates mechanisms of institutional and cultural change. While much work emphasizes the persistence of cultural practices, the authors document how religious institutions can facilitate relatively rapid adaptation to economic conditions. This suggests that successful religious movements may act as mediators of cultural change, selectively relaxing certain prescriptions while maintaining their core identity and values. In an era of rapid economic transformation across the developing world, understanding these dynamics of religious and cultural adaptation becomes increasingly important.

ABOUT OUR SCHOLAR

Eduardo Montero

Assistant Professor, Harris School of Public Policy

Written by Abby Hiller • Designed by Maia Rabenold

16

RESEARCH BRIEF • MARCH 2025

Central Bank Communication with the Polarized Public Based on BFI Working Paper No. 2025-37, “Central Bank Communication with the Polarized Public,” by Pei Kuang, University of Birmingham; Michael Weber, University of Chicago; Shihan Xie, University of Illinois Urbana-Champaign

Individuals who view the Fed as politically aligned report higher independence of and trust in the Fed, leading to lower inflation expectations and uncertainty. Strategic communication on institutional structure and policy objectives mitigates perception biases.

The Federal Reserve is designed to operate independently of short-term political pressures to maintain economic and price stability. However, the bank’s perceived neutrality has come under increasing scrutiny in today’s polarized political landscape. With President Trump’s return to office, political pressures on the Fed have intensified,

exemplified by demands for immediate interest rate cuts. These developments raise critical questions about public perceptions of the Fed’s independence, the role of partisanship in shaping trust, and how these perceptions influence macroeconomic expectations.

Figure 1 · Perceived Independence of the Federal Reserve Perceived Independence of the Federal Reserve Quasi-Constitutional

Quasi-Constitutional

No Tolerance

Institutional

Financial and Economic Independent

Personal Democrat

Republican

No Tolerance

Institutional

Financial and Economic

Personal Neutral

In-Group

Out-Group

This figure the perceived independenceofofthe theFed, Fed,measured measured on 1 indicates Strongly Disagree and 5and indicates Strongly Agree. Respondents rated the rated following Note: Note: This figure plotsplots the perceived independence onaa1 1toto55scale, scale,where where 1 indicates Strongly Disagree 5 indicates Strongly Agree. Respondents the following statements: (1) "The Federal Reserve’s legal foundation strongly protects it from political interference" (Quasi-Constitutional Independence); (2) "The Federal Reserve sets key policies, such as statements: (1) “The Federal Reserve’s legal foundation strongly protects it from political interference” (Quasi-Constitutional Independence); (2) “The Federal Reserve sets key policies, such as interest rates, without needing approval from government officials" (Institutional Independence); (3) "Appointments to the Federal Reserve’s leadership positions are made based on expertise interest rates, without rather needing approval from government officials” (Institutional Independence); (3) “Appointments the Federallimiting Reserve’s leadership positions made its based on expertise and qualifications than political loyalty" (Personal Independence); (4) "The Federal Reserve controls its own budget to and resources, the government’s ability toare influence actions" (Financial andrather Economic and(Personal (5) "The Federal Reserve will(4) not“The tolerate higher inflationcontrols rates in order to help reduce real valuelimiting of the U.S. debt" (No to Tolerance). and qualifications thanIndependence); political loyalty” Independence); Federal Reserve its own budget andthe resources, thegovernment’s government’s ability influence its actions” The left panel is categorized by respondents’ political affiliations (Independent, Democrat, Republican); the left panel illustrates the perceived independence across these dimensions based on (Financial and Economic Independence); and (5) “The Federal Reserve will not tolerate higher inflation rates in order to help reduce the real value of the U.S. government’s debt” (No Tolerance). respondents’ alignment with the Fed (in-group, out-group, or neutral).

The left panel is categorized by respondents’ political affiliations (Independent, Democrat, Republican); the left panel illustrates the perceived independence across these dimensions based on respondents’ alignment with the Fed (in-group, out-group, or neutral).

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In this paper, the authors use a large-scale survey experiment to examine public trust in survey experiment the Federal Reserve. Conducted on the day of President Trump’s 2025 inauguration, the survey includes responses from more than 5,600 U.S. participants, capturing their perceptions of the Fed’s independence across multiple dimensions, including quasi-constitutional, institutional, and financial and economic independence.

The study also incorporates a randomized randomized controlled (RCT), where a subset of controlled trial (RCT) participants receives targeted information treatments—framed as Fed communication interventions—designed to inform them about the Fed’s institutional structure, policy objectives, and recent performance. The authors assess whether this messaging can enhance trust in the Fed. The survey and experiment reveal the following: •

Political alignment strongly influences perceptions of the Fed’s independence and credibility. Individuals who perceive the Fed as an “in-group” institution–aligned with their own political stance–consistently attribute higher independence scores, whereas those viewing the Fed as an “out-group” rate it as significantly less independent.

•

Greater perceived independence and trust in the Fed are associated with lower inflation expectations, a reduced perceived inflation target, and lower uncertainty about inflation and unemployment.

•

Providing information about the Fed’s institutional structure, its nonpartisan objectives, and its policy track record significantly increases trust in the institution and reduces perceptions of political bias.

These interventions also prompt individuals to place greater weight on official Fed communications when updating their macroeconomic expectations.

This research builds on earlier work documenting partisan variations in trust in the Fed by examining whether targeted Fed communication can reduce those differences.

For the Fed and other central banks, actively managing communications is essential to maintain credibility and to ensure effective policy transmission in a politically polarized environment. Future research should examine the influence of different framing techniques, media channels, and messenger credibility on public trust in monetary authorities.

survey experiment: a research method that embeds experimental design within a survey, randomly assigning participants to different conditions to measure causal effects on responses randomized controlled trial (RCT): a study design where participants are randomly assigned to either a treatment group or a control group to objectively measure the effects of an intervention

READ THE WORKING PAPER NO. 2025-37 · FEBRUARY 2025

Central Bank Communication with the Polarized Public bfi.uchicago.edu/working-papers/central-bankcommunication-with-the-polarized-public

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Michael Weber

Associate Professor of Finance, Chicago Booth

Written by Abby Hiller • Designed by Maia Rabenold

18

RESEARCH BRIEF • MARCH 2025

How Costly Are Business Cycle Volatility and Inflation? A Vox Populi Approach Based on BFI Working Paper No. 2025-34, “How Costly Are Business Cycle Volatility and Inflation? A Vox Populi Approach,”

by Dimitris Georgarakos, European Central Bank and CEPR; Kwang Hwan Kim, Yonsei University; Olivier Coibion, University of Texas at Austin; Myungkyu Shim, Yonsei University; Myunghwan Andrew Lee, New York University; Yuriy Gorodnichenko, New York University; Geoff Kenny, European Central Bank; Seowoo Han, Yonsei University; and Michael Weber, University of Chicago

Households are willing to forgo approximately 5–6% of their lifetime consumption to eliminate business cycle fluctuations and around 5% to achieve their desired inflation rate. This amount is higher among consumers whose consumption is more pro-cyclical, those facing greater economic uncertainty, and those living in countries with a history of higher economic volatility.

Many economists, early among them UChicago Figure 1Experience · WTP and Historical Experience WTP and Historical Nobel Laureate Robert Lucas, have explored the 8% Reduced in Consumption WTP to Avoid Business Cycles cost of business cycles, advancing theories about South Korea how much consumers would be willing to sacrifice to avoid market fluctuations. The consensus 7 view, based on work by Lucas and others, is that households are willing to sacrifice very little to eliminate business cycles, while inflation appears United States much more costly. In this paper, the authors 6 Ireland Spain provide the first direct estimates of consumers’ Italy Portugal self-reported willingness to pay (WTP) to eliminate business cycle risk as well as their willingness 5 to pay to bring inflation to their ideal level.

France Austria Understanding public perceptions of economic Germany conditions is essential for crafting policies that are 4 Belgium Finland not only effective but also widely supported.

Greece

Netherlands

The authors administer a series of large, nationally representative surveys in the United 3 1 2 3 4 5 6 States, Korea, and the eleven largest euro area Standard Deviation of Unemployment Rate, 1991-2023 countries: Austria, Belgium, Germany, Greece, Note: This figure shows the relationship between economic uncertainty, proxied by the standard deviation of the Spain, Finland, France, Ireland, Italy, Netherlands, Note: This figure shows the relationship between economic uncertainty, proxied by the employment rate between 1991 and 2023, and consumers’ WTP to avoid cycles. standard deviation of the employment rate between 1991business and 2023, and consumers’ WTP and Portugal. The survey collects respondents’ to avoid business cycles. willingness to pay (WTP): the maximum price a customer is willing to pay for a product or service (or in the case of this research, for a certain economic outcome)

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sociodemographic information and measures their risk aversion, micro-and macroeconomic expectations, exposure to business cycles, and WTP to avoid macroeconomic risks.

The authors validate survey responses by showing that self-reported WTP measures are consistent with theoretical predictions. For example, respondents in crisis-scarred countries like Korea and Greece report a higher WTP for macroeconomic stability, and those in countries that experienced high inflation in the past report a higher WTP for reduced inflation.

The survey yields the following results: •

Consumers are willing to permanently reduce their consumption by 5-6% to eradicate macroeconomic volatility. Consumers are also willing to reduce their consumption by roughly 5% to bring inflation to their desired level. Both figures are much higher than those implied by traditional theory.

•

Individuals with more cyclical earnings and who are more uncertain about their future consumption are willing to pay more to eliminate business cycles as well as to reduce inflation. In addition, greater uncertainty about the macroeconomic outlook (e.g. uncertainty about GDP growth) raises people’s WTP to reduce macroeconomic volatility, even after controlling for their individual consumption uncertainty. This result indicates that people seem to care about business cycle volatility above and beyond their implications for individuals’ own consumption.

READ THE WORKING PAPER NO. 2025-34 · FEBRUARY 2025

How Costly Are Business Cycle Volatility and Inflation? A Vox Populi Approach bfi.uchicago.edu/working-papers/how-costly-are-businesscycle-volatility-and-inflation-a-vox-populi-approach

While many scholars have theorized on the cost of business cycles, this work provides the first direct test of consumers’ willingness to pay to reduce inflation and avoid business cycle fluctuations. The authors find that people perceive business cycles and inflation as very costly overall—roughly two orders of magnitude more costly than what is proposed by traditional theory. These perceptions, whether they are ultimately correct or incorrect, matter for their peoples’ decisions, for elections, for trust in institutions, and for the success of many policies that rely on confidence. Ignoring them is a recipe for designing policies that may well succeed in theoretical models, and perhaps even in practice, but may yet fail in the polls and ultimately be replaced by populist alternatives.

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Michael Weber

Associate Professor of Finance, Chicago Booth

Written by Abby Hiller • Designed by Maia Rabenold

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