Category Archives: Economy

Traditional Measures of Unemployment Are Missing the Mark

Source: Mark Paul, Dollars & Sense, no. 341, web-only, May/June 2019

We’ve heard it countless times in recent media accounts: The economy is at “full employment.” The most recent jobs numbers, out the first week in May, show the official unemployment rate, and applications for unemployment benefits are at a 50-year low. The last time a recovery was able to push the unemployment rate to these levels was in 1969, when my mom was just entering elementary school and the United States was in the heyday of the “Golden Age” of capitalism.

But economists are puzzled. Despite low unemployment (the current rate is just 3.6%), significant wage increases remain elusive. In other words, workers aren’t benefiting much. This is deeply troubling in an era of unprecedented inequality, driven in large part by decades of a falling wage share. The size of our economic pie may be getting bigger, but the wage share, or the share of the economic pie going to workers, has been contracting. Furthermore, a lack of wage growth isn’t allowing for the true recovery that Main Street so desperately needs…..

Most of America’s rural areas are doomed to decline

Source: David Swenson, The Conversation, May 7, 2019

….The U.S. has been consistently urbanizing, especially for the past 100 years. Technology advances in manufacturing, agriculture, mining, fishing and forestry accelerated migration from rural to urban areas.

Over time, incremental innovations in those original core industries required fewer workers, further boosting migration away from rural areas. Much of the blue-collar and middle-income shares of more rural economies dwindled as a result….

The Yield Curve and Predicting Recessions

Source: Congressional Research Service, CRS Insight, IN11098, April 11, 2019

Economists and financial markets closely monitor interest rates in hopes of gleaning information about the path of the economy. One measure of particular interest is the “yield curve.” Recently, the yield curve associated with U.S. Treasuries inverted. This Insight discusses possible explanations for the inversion, including whether the inversion is signaling that the economy will enter a recession.

Automation and a Changing Economy

Source: Conor McKay, Ethan Pollack & Alastair Fitzpayne, Aspen Institute, Future of Work Initiative, April 2019

Automation is an important ingredient driving economic growth and progress. Automation has enabled us to feed a growing population while allowing workers to transition from subsistence farming to new forms of work. Automation helped moved us from a craft system to mass production, from blue-collar to white-collar to “new collar” work—with better work, higher wages, more jobs, and better living standards.

But without adequate policies and institutions, automation can also have negative effects on individuals and communities. Emerging technologies—including artificial intelligence, machine learning, and advanced robotics—have the potential to automate many tasks currently performed by workers, leading to renewed questions over what the future holds for the American workforce. We must ensure the proper support structures are in place to promote opportunity and prosperity for all.
Automation and a Changing Economy is divided into two sections.

Part I, Automation and a Changing Economy: The Case for Action, explores how automation impacts the economic security and opportunity of the American worker…..

Part II of this report, Automation and a Changing Economy: Policies for Shared Prosperity, outlines a program to address automation’s challenges and opportunities……

Related:
Executive Summary

U.S. Fiscal Multipliers and the Next Recession

Source: Bernard Yaros, Sarah Crane, Regional Financial Review, Vol. 29 no. 6, February 2019
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The purpose of this article is to serve as a primer on U.S. fiscal multipliers in times of recession. We discuss the economic policies that Congress typically authorizes during a downturn and size them up against one another based on their multipliers. We analyze the impact on the economy of more government aid to states and localities, unemployment insurance benefits, food stamps, infrastructure, and various tax cuts.

Who’s afraid of sunlight? Explaining opposition to transparency in economic development

Source: Nathan M. Jensen, Calvin Thrall, Washington Center for Equitable Growth, February 2019

From the abstract:
Why do some firms oppose transparency of government programs? In this paper we explore legal challenges to public records requests for deal-specific, company-specific participation in a state economic development incentive program. By examining applications for participation in a major state economic program, the Texas Enterprise Fund, we find that a company is more likely to challenge a formal public records request if it has renegotiated the terms of the award to reduce its job-creation obligations. We interpret this as companies challenging transparency when they have avoided being penalized for non-compliance by engaging in non-public renegotiations. These results provide evidence regarding those conditions that prompt firms to challenge transparency and illustrate some of the limitations of safeguards such as clawbacks (or incentive-recapture provisions) when such reforms aren’t coupled with robust transparency mechanisms.

Related:
Amazon HQ2: Texas experience shows why New Yorkers were right to be skeptical
Source: Nathan M. Jensen, Calvin Thrall, The Conversation, February 14, 2019

New York offered Amazon close to US$3 billion to build a “second” headquarters in Long Island City on the promise of 25,000 jobs.

Since the deal was joyfully announced in November, however, many local residents and some politicians in the area have been questioning whether it’s worth it, both in terms of the price tag and the impact on housing and traffic congestion. And on Feb. 14, Amazon backed out of the deal, citing political opposition to its plans.

The research supports those who question the wisdom of cities and states incentivizing economic development. Studies suggest the jobs and economic gains are usually not worth the tax breaks since the majority of companies would have come even without incentives.

And that’s when the companies try to live up to the promises they made. They don’t always do so, with the latest example being Foxconn’s announcement that it is reconsidering plans to build a factory in Wisconsin – less than a year after agreeing to create up to 13,000 high-tech jobs in exchange for more than $4.5 billion in incentives.

But how often do companies that agree to build factories and create jobs in exchange for economic incentives back away from their promises? And when they do, do taxpayers ever learn about it?

To shine light on these questions, we conducted a study of a Texas economic development program. Taxpayers in any American city considering luring a company with cash should take heed…..
Opinion: Amazon, New York and the End of Corporate Welfare
Source: Mene Ukueberuwa, Wall Street Journal, February 18, 2019
(subscription required)

Special tax breaks do little to spur the economy. Now they’re becoming politically unpopular too

Are New Yorkers better off after Amazon’s decision Thursday to cancel its planned headquarters in the Queens neighborhood of Long Island City? It’s a complicated question, weighing the benefits of new high-earning residents against the added strain on local services. Yet the pullout could lead to a decisive triumph for taxpayers across the nation, as city and state officials start to reckon with the popular backlash against corporate tax incentives…..

Opinion: New York Did Us All a Favor by Standing Up to Amazon
Source: David Leonhardt, New York Times, February 17, 2019

Yes, Amazon’s departure will modestly hurt the city’s economy. But it’s also a victory against bad economic policy.

New York Labor Didn’t Shrink from Confronting Amazon
Source: Steven Greenhouse, American Prospect, February 18, 2019

But unions were sharply divided about how to deal with the tech giant.

Local Governments and Economic Freedom: A Test of the Leviathan Hypothesis

Source: Adam A. Millsap, Bradley K. Hobbs, Dean Stansel, OnlineFirst, February 6, 2019
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From the abstract:
Brennan and Buchanan’s Leviathan hypothesis states that “potential for fiscal exploitation varies inversely with the number of competing governmental units” (p. 211) and that “total government intrusion into the economy should be smaller, ceteris paribus, the greater the extent to which taxes and expenditures are decentralized [and]…the smaller the jurisdictions” (p. 185). Using data for US metropolitan statistical areas, we provide the first local-level test of that hypothesis (that we are aware of) that uses “economic freedom” as the dependent variable, which provides a better measure of “total government intrusion into the economy” than the less comprehensive measures (taxes or spending) used in the previous literature. We find mixed support for the Leviathan hypothesis. The number of competing jurisdictions is positively associated with economic freedom, driven largely by the labor market freedom component as opposed to the government spending and tax components (the very measures used in the previous literature).

African-Americans’ economic setbacks from the Great Recession are ongoing – and could be repeated

Source: Vincent Adejumo, The Conversation, February 5, 2019

The financial crisis of 2009, the worst since the Great Depression, was hard on all Americans. But arguably no group felt its sting more than African-Americans, who were already the most economically and financially vulnerable segment of the population going into it.

Even today, a decade since the Great Recession hit, blacks still haven’t fully recovered and remain in a precarious financial condition. What’s worse, Wall Street and policymakers are beginning to worry another downturn may be on the horizon. ….

FAQ: The impact of the government shutdown and of another potential impasse

Source: Rebecca Karnovitz, Atsi Sheth, Madhavi Bokil, William Foster, Nicholas Samuels, Bruce Herskovics, Anne Van Praagh, Moody’s, Sector In-Depth, January 28, 2019
(subscription required)

On January 25, US President Donald Trump signed a short-term spending bill to reopen the federal government of the United States (Aaa stable) until Feb. 15 while negotiations continue on his proposal to build a wall along the country’s southern border. If the impasse is not resolved in the next three weeks, the president said the government will either shut down again or he will use emergency powers under the US Constitution to move forward with his border security proposal. In this report, we answer some of the key questions about the credit effects of the 35-day partial government shutdown – the longest such closure in US history – and the potential ramifications of another shutdown…..