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The Great Recession, Entrepreneurship, and Productivity Performance

February 18, 2015 Comments off

The Great Recession, Entrepreneurship, and Productivity Performance
Source: Federal Reserve Bank of Boston

I study the recent evolution of entrepreneurship in the United States . I find that there was a significant decline in entrepreneurship around the time of the Great Recession. However, I also find a recovery in recent years. I then link the evolution of entrepreneurship to productivity performance and find evidence of a positive association between the two variables.

Does Health Care Reform Support Self-Employment?

February 17, 2015 Comments off

Does Health Care Reform Support Self-Employment? (PDF)
Source: Federal Reserve Bank of Kansas City

Health insurance access can influence individuals’ labor market decisions. Some economists argue employer-provided health insurance may have deterred entrepreneurship, as self-employed individuals may have faced difficulties in obtaining coverage. As the Patient Protection and Affordable Care Act (PPACA) is gradually implemented, the reform might affect individuals’ decisions to become or remain self-employed.

Tüzemen and Becker examine a similar reform, the Massachusetts Health Care Reform Act, as a case study for the PPACA. They find the uninsured rate declined in Massachusetts following the reform for working-age individuals in general and for the self-employed in particular. Additionally, the self-employment share stayed flat in the state while declining in the rest of the nation. The authors conclude the reform may have supported self-employment in Massachusetts, and suggest the PPACA might have similar effects on the national self-employment share.

What Do Data on Millions of U.S. Workers Reveal about Life-Cycle Earnings Risk?

February 12, 2015 Comments off

What Do Data on Millions of U.S. Workers Reveal about Life-Cycle Earnings Risk? (PDF)
Source: Federal Reserve Bank of New York

We study the evolution of individual labor earnings over the life cycle, using a large panel data set of earnings histories drawn from U.S. administrative records. Using fully nonparametric methods, our analysis reaches two broad conclusions. First, earnings shocks display substantial deviations from lognormality—the standard assumption in the literature on incomplete markets. In particular, earnings shocks display strong negative skewness and extremely high kurtosis—as high as 30 compared with 3 for a Gaussian distribution. The high kurtosis implies that, in a given year, most individuals experience very small earnings shocks, and a small but non-negligible number experience very large shocks. Second, these statistical properties vary significantly both over the life cycle and with the earnings level of individuals. We also estimate impulse response functions of earnings shocks and find important asymmetries: Positive shocks to high-income individuals are quite transitory, whereas negative shocks are very persistent; the opposite is true for low-income individuals. Finally, we use these rich sets of moments to estimate econometric processes with increasing generality to capture these salient features of earnings dynamics.

See: Your lifetime earnings are probably determined in your 20s (Washington Post)

Do the Benefits of College Still Outweigh the Costs?

February 2, 2015 Comments off

Do the Benefits of College Still Outweigh the Costs? (PDF)
Source: Federal Reserve Bank of New York

In recent years, students have been paying more to attend college and earning less upon graduation—trends that have led many observers to question whether a college education remains a good investment. However, an analysis of the economic returns to college since the 1970s demonstrates that the benefits of both a bachelor’s degree and an associate’s degree still tend to outweigh the costs, with both degrees earning a return of about 15 percent over the past decade. The return has remained high in spite of rising tuition and falling earnings because the wages of those without a college degree have also been falling, keeping the college wage premium near an all-time high while reducing the opportunity cost of going to school.

Federal Reserve issues FOMC statement (January 28, 2015)

January 30, 2015 Comments off

Federal Reserve issues FOMC statement
Source: Federal Reserve Board

Information received since the Federal Open Market Committee met in December suggests that economic activity has been expanding at a solid pace. Labor market conditions have improved further, with strong job gains and a lower unemployment rate. On balance, a range of labor market indicators suggests that underutilization of labor resources continues to diminish. Household spending is rising moderately; recent declines in energy prices have boosted household purchasing power. Business fixed investment is advancing, while the recovery in the housing sector remains slow. Inflation has declined further below the Committee’s longer-run objective, largely reflecting declines in energy prices. Market-based measures of inflation compensation have declined substantially in recent months; survey-based measures of longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators continuing to move toward levels the Committee judges consistent with its dual mandate. The Committee continues to see the risks to the outlook for economic activity and the labor market as nearly balanced. Inflation is anticipated to decline further in the near term, but the Committee expects inflation to rise gradually toward 2 percent over the medium term as the labor market improves further and the transitory effects of lower energy prices and other factors dissipate. The Committee continues to monitor inflation developments closely.

To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate.

Offshoring, Low-Skilled Immigration, and Labor Market Polarization

January 27, 2015 Comments off

Offshoring, Low-Skilled Immigration, and Labor Market Polarization
Source: Federal Reserve Bank of Atlanta

During the last three decades, jobs in the middle of the skill distribution disappeared, and employment expanded for high- and low-skill occupations. Real wages did not follow the same pattern. Although earnings for the high-skill occupations increased robustly, wages for both low- and middle-skill workers remained subdued. We attribute this outcome to the rise in offshoring and low-skilled immigration, and we develop a three-country stochastic growth model to rationalize this outcome. In the model, the increase in offshoring negatively affects the middle-skill occupations but benefits the high-skill ones, which in turn boosts aggregate productivity. As the income of high-skill occupations rises, so does the demand for services provided by low-skill workers. However, low-skill wages remain depressed as a result of the surge in unskilled immigration. Native workers react to immigration by upgrading the skill content of their labor tasks as they invest in training.

The Forecasting Power of Consumer Attitudes for Consumer Spending

January 24, 2015 Comments off

The Forecasting Power of Consumer Attitudes for Consumer Spending
Source: Federal Reserve Bank of Boston

The widely studied Reuters/Michigan Index of Consumer Sentiment is constructed from the answers to five questions from the more comprehensive Reuters/Michigan Surveys of Consumers. Yet little work has been done on what predictive power the information taken from this more thorough compilation of consumer attitudes and expectations may have for forecasting consumption expenditures. The authors construct a limited set of real-time summary measures for 42 questions selected from these broader Surveys corresponding to three broad economic determinants of consumption—income and wealth, prices, and interest rates, and then use regression analysis to evaluate and test the ability of these summary measures to predict future changes in real consumer expenditures, even when controlling for current and future fundamentals. They explain a nontrivial portion of consumption and other real activity forecast errors from professional forecasts. This is consistent with these measures’ ability to predict consumption even when conditioning on a broader set of fundamentals as well as professional forecasters’ judgmental forecast adjustments.

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