The New Paradigm Papers of the Month of February

Declining Life Satisfaction and Happiness Among Young Adults in Six English-speaking Countries

Jean Twenge, David G. Blanchflower

This descriptive study documents a decline in life satisfaction and happiness among young adults in the last decade in different English-speaking countries: USA, Australia, Canada, Ireland New Zealand and the UK. The traditional U-shaped relationship of life satisfaction with age has been replaced by a linear relationship, where life satisfaction rises with age. This indicates a crisis in wellbeing among the young. The article does not shed light on potential causes but demands research to continue to explore the reasons behind the growing unhappiness, and declining happiness of young adults.

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The decline of manufacturing employment and the rise of the far-right in Austria

Karim Bekhtiar

Today, far-right populist parties strongly build on the support of workers, traditionally a left-leaning electorate. This trend has been paralleled by the decline of the manufacturing sector in many advanced economies. A study by Karim Bekhtiar on regional voting behaviour in Austria between 1995 and 2019, recently published in the Journal of Public Economics, shows that the decline in the manufacturing sector explains around one-third of the observed increase in far-right vote shares. It finds that manufacturing decline can be attributed to both increasing globalization (see research by David Autor, David Dorn and others) and automation (e.g. Acemoglu and Restrepo 2020). Remarkably, it is not the personal loss of a job that makes people vote on the right, but the general perception of an insecure labor market and disappointed expectations for the future.

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Without Roots: The Political Consequences of Collective Economic Shocks

Simone Cremaschi, Nicola Bariletto, Catherine E. De Vries

Another study also examines the effect regional (and not the individual) economic shocks have on far-right voting behaviour. Exploiting the sudden onset of a plant disease epidemic in Puglia, Italy, affecting olive trees, the authors try to identify causal collective effects of this negative natural shock on voting behaviour at the municipal level. The authors combine quantitative evidence (a 2.2-percentage-point increase in far-right vote share in affected regions) with qualitative fieldwork to better understand different channels. They note that a pre-existing sense of neglect by the state reinforced this political change.

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Foreign Political Risk and Technological Change

Joel P. Flynn, Antoine Levy, Jacob Moscona, Mai Wo

While ‘de-risking’ of supply chains is often discussed in the context of government action, the private sector is also adapting to foreign political risks. One way to hedge against geopolitical uncertainties is through private investment in domestic innovation to reduce dependence on imports. A new study examines the economic consequences of innovation in response to increased geopolitical risk. The authors find that there is greater innovation in domestic sectors with higher exposure to external political risk, especially when geopolitical adversaries are involved. But this technological progress has a downside: countries with high geopolitical risk lose export performance. This means that innovation is not only a strategy to minimize risk, but can also bring new economic challenges.

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Firewall for Innovation

Jie Zhou

Could protectionist policies potentially foster innovation not only in manufacturing but also in digital (service) sectors? Given the current deterioration of EU-US relations, the question how to limit dependance on US tech companies and how to boost native innovation in digital technologies becomes ever more important for Europe. A recent study investigates the effects of China’s Great Firewall, the world’s largest system of internet regulation (set in place for political reasons), on the development of domestic mobile apps. It finds that Chinese in-house development increased by 14% two years after the blockage. This technological progress spilled over broadly post-blockage, as both domestic and foreign apps adopted more Chinese technologies. According to the study, protectionist policies brought about through China’s Great Firewall boosted its app industry, potentially contributing to China’s leadership role in this fast-growing industry.

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