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The Prevalence of Apprenticeships in Germany and the United States

August 22, 2014 Comments off

The Prevalence of Apprenticeships in Germany and the United States (PDF)
Source: Federal Reserve Bank of Richmond

The educational systems and labor markets of Germany and the United States take different approaches to preparing young people for the workforce. One feature of Germany’s workforce development model that has been of interest to policymakers in the United States is the important role played by employer-financed apprenticeships. The United States instead relies mainly on comprehensive general education, with career training largely taking place in community colleges and other postsecondary institutions. Research has pointed to several factors that may foster apprenticeships in Germany to a greater extent than in the United States, including labor-market conditions, social norms, and other circumstances.

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Federal Open Market Committee (FOMC) Minutes (August 20, 2014)

August 21, 2014 Comments off

Federal Open Market Committee (FOMC) Minutes
Source: Federal Reserve Board

The Federal Reserve Board and the Federal Open Market Committee on Wednesday released the attached minutes of the Committee meeting held on July 29-30, 2014.

The minutes for each regularly scheduled meeting of the Committee ordinarily are made available three weeks after the day of the policy decision and subsequently are published in the Board’s Annual Report. The descriptions of economic and financial conditions contained in these minutes are based solely on the information that was available to the Committee at the time of the meeting.

Consumer Cash Usage: A Cross-Country Comparison with Payment Diary Survey Data

August 20, 2014 Comments off

Consumer Cash Usage: A Cross-Country Comparison with Payment Diary Survey Data
Source: Federal Reserve Bank of Boston

We measure consumers’ use of cash by harmonizing payment diary surveys from seven countries. The seven diary surveys were conducted in 2009 (Canada), 2010 (Australia), 2011 (Austria, France, Germany, and the Netherlands), and 2012 (the United States). Our paper finds cross-country differences — for example, the level of cash use differs across countries. Cash has not disappeared as a payment instrument, especially for low-value transactions. We also find that the use of cash is strongly correlated with transaction size, demographics, and point-of-sale characteristics such as merchant card acceptance and venue.

The Role of Oil Price Shocks in Causing U.S. Recessions

August 20, 2014 Comments off

The Role of Oil Price Shocks in Causing U.S. Recessions
Source: Federal Reserve Board

Although oil price shocks have long been viewed as one of the leading candidates for explaining U.S. recessions, surprisingly little is known about the extent to which oil price shocks explain recessions. We provide a formal analysis of this question with special attention to the possible role of net oil price increases in amplifying the transmission of oil price shocks. We quantify the conditional recessionary effect of oil price shocks in the net oil price increase model for all episodes of net oil price increases since the mid-1970s. Compared to the linear model, the cumulative effect of oil price shocks over the course of the next two years is much larger in the net oil price increase model. For example, oil price shocks explain a 3 percent cumulative reduction in U.S. real GDP in the late 1970s and early 1980s and a 5 percent cumulative reduction during the financial crisis. An obvious concern is that some of these estimates are an artifact of net oil price increases being correlated with other variables that explain recessions. We show that the explanatory power of oil price shocks largely persists even after augmenting the nonlinear model with a measure of credit supply conditions, of the monetary policy stance and of consumer confidence. There is evidence, however, that the conditional fit of the net oil price increase model is worse on average than the fit of the corresponding linear model, suggesting much smaller cumulative effects of oil price shocks for these episodes of at most 1 percent.

Paychecks or Promises? Lessons from the Death Spiral of Detroit

August 12, 2014 Comments off

Paychecks or Promises? Lessons from the Death Spiral of Detroit
Source: Federal Reserve Bank of Minneapolis

Pay-with-promises compensation plans accumulate liability for future employee benefits, such as retiree health insurance. A simple economic model demonstrates that such plans can exacerbate fiscal crises faced by cities that experience external economic shocks, such as the departure of a major employer. City leaders often raise taxes and/or reduce public services to pay off legacy employee debts, and such steps encourage residents to move out, reducing the tax base and raising fiscal stress. Pay-as-you-go compensation plans are more prudent; they settle liabilities to employees paycheck by paycheck.

Federal Reserve Board issues Report on the Economic Well-Being of U.S. Households

August 8, 2014 Comments off

Federal Reserve Board issues Report on the Economic Well-Being of U.S. Households
Source: Federal Reserve Board

In its new Report on the Economic Well-Being of U.S. Households, the Federal Reserve Board provides a snapshot of the self-perceived financial and economic well-being of U.S. households and the issues they face, based on responses to the Board’s 2013 Survey of Household Economics and Decisionmaking. The report provides insight into numerous topics of current relevance to household finances, including: housing and living arrangements; credit access and behavior; education and student loan debt; savings; retirement; and health expenses.

Overall, the survey found that as of September 2013 many households were faring well, but that sizable fractions of the population were at the same time displaying signs of financial stress. Over 60 percent of respondents reported that their families were either “doing okay” or “living comfortably” financially; although one-fourth said that they were “just getting by” financially and another 13 percent said they were struggling to do so. The effects of the recession also continued to be felt by many households, with 34 percent reporting that they were somewhat worse off or much worse off financially than they had been five years earlier in 2008 and 34 percent reporting that they were about the same.

As of September 2013, education debt of some kind was held by 24 percent of the population, with 16 percent having acquired debt for their own education, 7 percent for their spouse/partner’s education, and 6 percent for their child’s education.

The survey results suggest that many households are not adequately prepared for retirement. Thirty-one percent of non-retired respondents reported having no retirement savings or pension, including 19 percent of those ages 55 to 64.

The Great Recession pushed back the planned date of retirement for two-fifths of those ages 45 and over who had not yet retired, and 15 percent of those who had retired since 2008 reported that they retired earlier than planned due to the recession. Among those ages 55 to 64 who had not yet retired, only 18 percent plan to follow the traditional retirement model of working full time until a set date and then stop working altogether, while 24 percent expected to keep working as long as possible, 18 percent expected to retire and then work a part-time job, and 9 percent expected to retire and then become self-employed.

A College Education Saddles Young Households with Debt, but Still Pays Off

August 7, 2014 Comments off

A College Education Saddles Young Households with Debt, but Still Pays Off
Source: Federal Reserve Bank of Cleveland

Many parents believe their children must get a college degree—especially if they want to have at least as comfortable a lifestyle as their parents had; yet the price of a college degree has been rising rapidly over the past three decades. As costs have risen, more and more students and their families have turned to education loans for financing. This trend, combined with the strong propensity for households to form among individuals of similar education levels, has led to much larger student loan debt burdens for households headed by young adults who have attended college. In the 1989 Survey of Consumer Finances, real (inflation-adjusted) average student loan debt for young households (those headed by someone between 22 and 29 years of age) with a college degree was $3,420. In 2010, the same average was $16,714, nearly a 400 percent increase. For households with some college, but without a college degree, average student loan debt rose about 270 percent.

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