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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.

Smoothing State Tax Revenues over the Business Cycle: Gauging Fiscal Needs and Opportunities

January 22, 2015 Comments off

Smoothing State Tax Revenues over the Business Cycle: Gauging Fiscal Needs and Opportunities
Source: Federal Reserve Bank of Boston

During the two most recent U.S. recessions in 2001 and in 2007–2009, state governments experienced an unusually high degree of fiscal stress due to increased revenue cyclicality. Expanding upon the aggregate evidence, this paper explores the degree to which individual states have experienced fluctuating tax receipts over the business cycle. The findings provide state policymakers with information to better understand the extent and causes of this tax revenue cyclicality and, in the context of balanced budget requirements, the efficacy of alternative measures that might be employed to smooth the sensitivity of state resources to economic conditions.

Bitcoin: A primer

January 22, 2015 Comments off

Bitcoin: A primer
Source: Federal Reserve Bank of Chicago

Bitcoin is a digital currency that was launched in 2009, and it has attracted much attention recently. This article reviews the mechanics of the currency and offers some thoughts on its characteristics.

U.S. Consumers’ Holdings and Use of $100 Bills

January 21, 2015 Comments off

U.S. Consumers’ Holdings and Use of $100 Bills
Source: Federal Reserve Bank of Boston

Key Findings

  • More than one in five U.S. consumers carries more than $100 in cash in his or her pocket, purse, or wallet, and the more cash the consumer carries the more likely he or she is to carry $100 bills. Consumers may have $100 bills stored on their property as well, but data are not available on this aspect of consumer cash use.
  • People who carry $100 bills tend to hold them for a while. On any given day, between 75 percent and 80 percent of respondents to the 2012 DCPC who carried a $100 bill held on to it. There does not appear to be evidence that consumers try to get rid of $100 bills.
  • By number of transactions, consumers with $100 bills do not make relatively more payments in cash than consumers with more than $100 in mixed bills, as reported in the 2012 DCPC. Thus, $100 bills do not appear to be more special than other currency denominations as a means of payment; rather, some consumers appear to have a stronger preference than other consumers for $100 bills.
  • By value of cash payment, people who carry $100 bills make larger-value cash payments than people who carry more than $100 in mixed bills.
  • Thus, $100 bills appear to help some consumers who prefer to pay in cash make larger cash payments more conveniently.
  • Nevertheless, most cash payments are for less than $100, so people are receiving change from their $100 bills. And, for payments of $100 or more, 15.8 percent of purchases were paid in cash, while just 3 percent of bills were paid in cash. So, based on these data, it appears that most consumer payments greater than $100 in value are made using noncash means of payment. Thus, the need for a denomination as large as a $100 bill appears to be modest in the big picture of consumer payments.

Beige Book – January 14, 2015

January 20, 2015 Comments off

Beige Book – January 14, 2015
Source: Federal Reserve Board

Reports from the twelve Federal Reserve Districts suggest that national economic activity continued to expand during the reporting period of mid-November through late December, with most Districts reporting a “modest” or “moderate” pace of growth. In contrast, the Kansas City District reported only slight growth in December. However, most of their contacts, along with those of several other Districts, expect somewhat faster growth over the coming months. The Dallas District indicated that growth slowed slightly during the reporting period and that several contacts expressed concern about the effect of lower oil prices on the District economy. Consumer spending increased in most Districts, with generally modest year-over-year gains in retail sales. Auto sales showed moderate to strong growth. Travel and tourism picked up during the reporting period. The pace of growth of demand for nonfinancial services varied widely across Districts and across sectors, but appeared to be moderate on balance. Manufacturing activity expanded in most Districts. Single-family residential real estate sales and construction were largely flat on balance across the Districts, while commercial real estate activity expanded. Demand for business and consumer credit grew. Credit quality improved a bit further overall. Agricultural conditions were mixed. Overall demand for energy-related products and services weakened somewhat, while the output of energy-related products increased.

Payrolls in a variety of sectors expanded moderately during the reporting period. Significant wage pressures were largely limited to workers with specialized technical skills. Prices increased slightly, on balance, in most Districts.

Labor Market Transitions and the Availability of Unemployment Insurance

January 12, 2015 Comments off

Labor Market Transitions and the Availability of Unemployment Insurance
Source: Federal Reserve Bank of Boston

Economists often expect unemployment insurance (UI) benefits to elevate unemployment rates because recipients may choose to remain unemployed in order to continue receiving benefits, instead of accepting a job or dropping out of the labor force. This paper uses individual data from the Current Population Survey for the period between 2005 and 2013—a period during which the federal government extended and then reduced the length of benefit availability to varying degrees in different states—to investigate the influence of program parameters in the UI system on monthly transition rates of unemployed individuals. The main finding is that unemployed job losers tend to remain unemployed until they exhaust UI benefits, at which point they become more likely to drop out of the labor force; transitions to a job appear to be unaffected by UI benefit extensions. These findings imply that the longer periods of benefit eligibility under the federal programs EUC08 and EB—up to 99 weeks in many states in 2011 and 2012—contributed to the elevated jobless rates observed during that period, but not via lower employment. By the same token, the sharp contraction of benefit weeks that occurred in 2012 and continued more gradually in 2013 likely contributed to declines in unemployment and participation rates beyond what one would expect based on the improving economy alone. Similarly, the December 28, 2013 sudden cutoff of federal UI payments to an estimated 1.3 million jobless Americans who had been looking for work for more than six months is adding to the pace of transitions from unemployment to dropping out of the labor force, thus reducing the unemployment rate and the labor force participation rate further in the first half of 2014, although very modestly.

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