"How is the gender pay gap changing over time? To answer this question, let's consider the following chart, showing available estimates from the OECD. These estimates include OECD member states, as well as some other non-member countries, and they are the longest available series of cross-country data on the gender pay gap that we are aware of.
Here we see that the gap is large in most OECD countries, but it has been going down in the last couple of decades. In some cases the reduction is remarkable. In the UK, for example, the gap went down from almost 50% in 1970 to about 17% in 2016.
These estimates are not directly comparable to those from the ILO, because the pay gap is measured slightly differently here: The OECD estimates refer to percent differences in median earnings (i.e. the gap here captures differences between men and women in the middle of the earnings distribution); and they cover only full-time employees and self-employed workers (i.e. the gap here excludes disparities that arise from differences in hourly wages for part-time and full-time workers).
However, the ILO data shows similar trends for the period 2000-2015.
The conclusion is that in most countries with available data, the gender pay gap has decreased in the last couple of decades."
"As companies respond to rising oil prices by drilling more for it, they often unearth gas as a byproduct. That has further weighed on already low gas prices, pressuring shale frackers in regions that primarily produce gas.
The average share price for the five top companies focused on the oil-rich Permian Basin in Texas and New Mexico are up more than 16% over the past year. Share prices for the top five producers focused on the Marcellus Shale in Appalachia, the country’s largest deposit of natural gas, are down more than 9%."
"Natural-gas futures for July delivery closed at $2.939 a million British thermal units on Tuesday and have been below $4 since 2014. Prices passed $10 in 2008 and had stayed above the $4 mark before 2012. Many banks and analysts predict average prices will be below $3 for years. Meanwhile, U.S. oil prices have climbed to more than $65 a barrel for the first time since 2014."
"The spectacular growth in online shopping, it turns out, is not only tamping down inflation more than previously thought, but also distorting the way it is measured.
The studies reinforce the views of Federal Reserve officials who see the internet’s increasing influence as a leading suspect in a continuing mystery: why inflation routinely falls short of their 2 percent target, considered the sweet spot for keeping the economy humming without overheating."
"“We don’t have as good measures of the economy as we should, in part because there are many new digital goods and new online channels,” said Erik Brynjolfsson, director of the M.I.T. Initiative on the Digital Economy. “At the same time, digitization of more and more of commerce creates a huge opportunity for much better measurement.”
One opportunity has come from the Digital Price Index, a compilation of data scraped from the web that Adobe Systems recently started collecting.
An analysis of that information by Austan Goolsbee of the University of Chicago and Peter Klenow of Stanford found that prices for goods sold on the internet rose much more slowly from 2014 to 2017 than indicated by barometers like the Consumer Price Index, or C.P.I.
Online prices of personal computers fell by 12.3 percent, for example, but the C.P.I. showed just a 6.9 percent drop. Toy prices online slumped 12 percent, while the C.P.I. put the drop at just 7.8 percent. Online prices for photographic equipment and supplies fell 9.2 percent compared with the 0.6 percent decline registered by the official measure.
The government said on Tuesday that the C.P.I. increased 2.8 percent in May from 12 months earlier, with much of that jump coming from higher prices for gasoline and other energy items. Not including food, energy and housing, which tend to change a lot from month to month, the index was up a much more modest 1.3 percent. The monthly figures are based on a sampling of 140,000 products sold both in stores and online. Adobe’s digital index solely includes internet sales, but the range of products covered is much bigger: 2.1 million transactions every month.
“A lot of what’s in the C.P.I. is not bought on the internet, like health care and housing,” said Mr. Goolsbee, who was also an adviser to former President Barack Obama. But if you compare the same set of goods, he said, “there is massively more deflation” online — by as much as 2.5 percentage points. A deflationary cycle, where prices keep dropping, as has happened in Japan, can mire an economy in decline.
“Prices are going down a whole lot faster than the C.P.I. shows for the same things,” he said.
After all, as bargain hunters know, comparison shopping is a cinch online. The result is that merchants are leery of raising prices. The ease of entering the marketplace, regardless of location, further ratchets up the competition. At the same time, internet retailers can often operate at a lower cost than their brick-and-mortar competitors.
Jerome H. Powell, the Federal Reserve chairman, has called it “the Amazon effect story.”"
"Figuring out just how much of an impact online shopping has had on inflation, however, remains a challenge.
There are several measures of inflation — like the C.P.I., used to calculate cost-of-living increases in Social Security, and personal consumption expenditures (P.C.E.), an index favored by the Fed — and they all try to take account of buying and selling on the web."
"And as e-commerce grows and new products proliferate, some economists argue, the traditional measures have a harder time capturing the full scale of price changes online.
Mr. Goolsbee and Mr. Klenow discovered that new and updated products — from the iPhone X and digital assistant devices to electric bikes and toy monkey Fingerlings — were flooding online marketplaces much faster than estimated.
Putting aside apparel, where designers offer new fashions every season, the research found that 44 percent of the products sold online did not exist in the previous year. And nearly a quarter disappeared from one year to the next."
"Online spending now accounts for 10 percent of all retail spending, and in some categories 50 percent.
This isn’t the first time innovations in shopping have upended pricing structures. Over time, the introduction of the Sears catalog similarly held down prices compared with the small, local stores where people had always shopped, said Mr. Gordon, the Northwestern economist."
"In “The Future of Work,” Brookings Institution scholar Darrell West presents his version of a now-popular claim: that robotics and artificial intelligence really do make this time different.
Mr. West describes a future in which “older positions will be eliminated faster than new ones are created,” leaving “workers with few skills . . . unable to find jobs.” He warns of “social unrest” and the prospect of “dystopias that are chaotic, violent, and authoritarian in nature.” Accelerating technology requires us, he concludes, to “rethink the concept of work itself.”"
The author provides an interesting glimpse at the latest innovations: nimble robots, sophisticated software, an “Internet of Things” through which everyday objects communicate with one another. He shows how these innovations might affect existing industries and spawn new ones, reducing the need for some types of jobs and increasing the need for others, as well as changing the way people work in whatever jobs they have.
What is missing, however, is evidence that such breakthroughs reduce the economy’s demand for work. Instead, the American firms that Mr. West describes using technology seem invariably to end up employing more people. He describes Dynamic, a manufacturer that once employed four people to operate a press but then bought a $35,000 robot “that was effective at doing their jobs.” But the cited article reports that no one was laid off. The robot still needed an operator. And now the firm needed a maintenance technician, too. Another manufacturer, Taco Comfort Solutions, achieved extraordinary productivity gains in the past decade—and doubled its workforce along the way. At the industry level, Mr. West asserts that “the number of jobs lost in the retail sector exceeds the number of new jobs being created,” but the cited article shows an industry-wide job increase in every year since 2010.
Though technology’s dystopian consequences have not yet emerged, perhaps they soon will. To make that case, Mr. West leads with an infamous Oxford study finding that half of U.S. workers will likely see their jobs automated in the next 20 years. But the study assigns ridiculous probabilities of automation to many occupational categories: tour guides, real-estate agents and fashion models rank among the most automatable. So does school-bus driver, as if parents might lock unsupervised children into self-driving metal boxes each day.
The approach’s broader problem is its binary view, in which jobs either can or cannot be “automated,” rendering a worker unnecessary. Outside a few iconic examples like toll-takers, machines rarely replace people in that way. Instead, they augment, doing the most routine elements of a job while humans focus on hard cases and interpersonal interaction.
Careful studies using a task-based view of this sort find that, although substantial parts of many jobs can be automated—that is, technology can help still-needed workers become more productive—only 5% to 10% of jobs can have the human element removed entirely. The rate of productivity growth implied by the coming wave of automation would thus look similar to historical rates. Mr. West acknowledges this contrary view but never explains why the seemingly implausible Oxford forecast is the better one."
"If firms need workers to make new technology function, then they can deploy it only as fast as they can train workers to use it."
"The authors explain, for instance, why making robots operate more safely alongside humans has been critical to factory deployment—the very breakthrough emphasized by Dynamic’s CEO, but ignored by Mr. West. They describe AI’s role alongside existing workers in decidedly unsexy fields like equipment maintenance, bank-fraud detection and customer complaint management."
"the Fed believes a little bit of inflation at a consistent and predictable rate is needed to keep the economy growing steadily and at a healthy pace.
The Commerce Department’s price index for personal-consumption expenditures, excluding food and energy costs, rose 2% in May from a year earlier after running below that mark every month since April 2012."
"Economists have blamed factors like weak economic demand, a strong dollar and a slowly recovering labor market for low inflation in recent years. The strong dollar makes imports cheaper, and soft labor markets hold down wages.
Structural factors are also thought to have played a role, like an aging population spending less, cheap imports due to globalization and the “Amazon effect” of consumers spending less on goods online.
But demand is picking up and unemployment falling. Many forecasters estimate the U.S. economy grew at near 4% or even faster in the second quarter, twice the rate of the 2% average for much of the expansion. More demand tends to push prices higher."
"In recent months, businesses have seen their own costs rise, in part because of high energy prices and labor shortages putting some mild upward pressure on wages. Now, some businesses say they are trying to pass those costs on to consumers."
"For the broader economy, hitting the 2% inflation target is “encouraging,” Michael Feroli, chief U.S. economist at JPMorgan Chase & Co., said in an interview. It means the economy is in better balance after slow growth in the wake of the severe 2007-2009 recession. However, “touching 2% isn’t grounds for victory” after the long run of low inflation, Mr. Feroli said. Fed officials “want to see it sustained.”"
"we are learning about the real location of the natural rate of unemployment as we go,”" [chairman Powell said]
"Officials’ estimates of the natural rate have dropped in the past two years, but their projection for unemployment by the end of 2019 has dropped even more, and even that may prove pessimistic if the usual relationship between unemployment and economic growth holds"
"The Fed can’t realistically move inflation much this year or next given the lags in monetary policy, but by 2020, it can. It could in theory raise interest rates by enough to slow the economy and cool the labor market so that inflation is 2% instead of 2.1% in 2020."
"For these projections to make sense, Fed officials must either raise their inflation target, assume some serendipitous boost to the economy’s potential growth rate or decline in the natural unemployment rate, abandon their economic models, or run much tighter monetary policy, especially after 2020."
"Abstract
A detailed record of the number and characteristics of persons in poverty is available since 1959. This paper provides measures for 1939 and 1949 that correspond as closely as possible to the official poverty statistics. Poverty, as officially measured, fell from 40.5 percent of all persons in 1949 to 13.1 percent in 1979, declining most among the elderly and least among female-headed households. We estimate the effects on the aggregate poverty rate of changes between 1940 and 1980 in the distribution of the population by selected demographic characteristics of household heads and by the employment status of head and spouse. Some changes, such as the increasing proportion of two-earner families, were poverty reducing, whereas others were poverty increasing."
"Driving this dynamic is a flood of new apartments and weakening demand."
"Rents rose 2.3% in the second quarter compared with a year earlier, the smallest annual increase since the third quarter of 2010 . . . due to large amounts of new supply."
"While average rents continued to grow, individual landlords cut rents in some markets. In addition, landlords are offering tenants incentives including as many as three months paying no rent, free parking, credit for ridesharing services like Uber and Lyft, and Amazon gift cards for as much as $2,500"
"Developers responded to escalating rents by building the most new apartments in 30 years, sending a flood of new high-end units to downtown areas across the country. Developers are expected to add 300,000 new units over the next year"
"The national vacancy rate ticked up to 4.8% from 4.3% in the second quarter of 2017."
"The Eagle Ford Shale field could still have billion of barrels of oil to pump, potentially making it the second largest oil field in the U.S.
In a report published Friday, the U.S. Geological Survey said the Eagle Ford — which stretches from the Texas-Mexico border into Louisiana — could contain 8.5 billion barrels of undiscovered and technically recoverable oil.
That would make it second in the U.S. for oil reserves, just ahead of the 7.4 billion barrels estimated to remain undiscovered in the Williston Basin of North Dakota.
West Texas’ Permian Basin, the name for a larger set of basins that includes the Wolfcamp and Midland basins, still reigns No. 1 with 20 billion barrels of undiscovered and technically recoverable oil, according to the U.S.G.S."
"The Eagle Ford may also have 66 trillion cubic feet of natural gas, making it tied for third in the U.S. with the Niobrara Basin in Colorado and Wyoming for potential natural gas reserves."
"The hospitality industry had 844,000 unfilled positions in April, a record high, according to the Labor Department. That accounts for about one out of every eight jobs available in America. Employment in food service and drinking places has increased by 1.6 million since May 2013 to 11.9 million in May 2018.
If businesses were just using machines to replace workers, you would see high unemployment in the industry, said Donald Grimes, a labor economist at the University of Michigan. “But you’re not seeing that at all.”
The 6% unemployment rate for restaurant workers is the lowest on record, according to the Labor Department. It tops the 3.8% overall unemployment rate, yet is extremely low for an industry with notoriously brisk turnover—a full percentage point below where it stood in 2000, the last time overall unemployment was as low as it is today.
The rise of machines in theory should lead restaurants to employ fewer people per establishment. So far that’s not happening, either. Nationwide, employment is up at individual quick-service restaurants, to 18.4 workers per establishment last year, from 17.4 before the recession began in late 2007.
Many restaurants are trying to do more, including staying open around the clock or delivering food. Some chains also need more employees to handle the increased demand that comes from automating tasks such as ordering."
"some Dunkin’ shops use digital refractometers to determine if coffee meets specifications.
Automation improves consistency, shaves time off tasks, and may help ease the incessant turnover that crimps productivity and staffing across the industry."
"A 2013 study by University of Oxford economists Carl Frey and Michael Osborne found that food service occupations, including cooks, hosts and servers, ranked in the top 20% of most automatable jobs among 700 occupations examined. Additional research from The Organization of Economic Co-operation and Development said food preparation faced the highest probability of automation among 88 industries."
"the labor pool is shrinking and wages are picking up, in part because of the shortages and also due to minimum-wage increases in many states."
"Automats, the waiterless establishments of the early 20th century that combined vending machines and a cafeteria, could be considered the first fast-food restaurants, said Magne Mogstad, a labor economist at the University of Chicago. They were shoved aside by fast-food restaurants that depended on humans to function.
“Automation,” he said, “may very well create demand for service with a personal touch.”
Panera Bread has created approximately 25,000 new jobs over the past two years including delivery drivers and new restaurant workers to handle the extra volume coming from digital ordering."
"McDonald’s Corp. is offering table service now too, thanks to self-order kiosks."
"We use Adobe Analytics data on online transactions for millions of products in many different categories from 2014 to 2017 to shed light on how online inflation compares to overall inflation, and to gauge the magnitude of new product bias online. The Adobe data contain transaction prices and quantities purchased. We estimate that online inflation was about 1 percentage point lower than in the CPI for the same categories from 2014--2017. In addition, the rising variety of products sold online, implies roughly 2 percentage points lower inflation than in a matched model/CPI-style index."
"To see where we are coming from we must go far back in time. 30 or even 50 years are not enough. When you only consider what the world looked during our life time it is easy to make the mistake of thinking of the world as relatively static – the rich, healthy and educated parts of the world here and the poor, uneducated, sick regions there – and to falsely conclude that it always was like that and that it always will be like that.
Take a longer perspective and it becomes very clear that the world is not static at all. The countries that are rich today were very poor just very recently and were in fact worse off than the poor countries today.
To avoid portraying the world in a static way – the North always much richer than the South – we have to start 200 years ago before the time when living conditions really changed dramatically.
Researchers measure extreme poverty as living with less than 1.90$ per day. These poverty figures take into account non-monetary forms of income – for poor families today and in the past this is important, particularly because of subsistence farming. The poverty measure is also corrected for different price levels in different countries and adjusted for price changes over time (inflation) – poverty is measured in so-called international dollar that accounts for these adjustments.
The first chart shows the estimates for the share of the world population living in extreme poverty. In 1820 only a tiny elite enjoyed higher standards of living, while the vast majority of people lived in conditions that we would call extreme poverty today. Since then the share of extremely poor people fell continuously. More and more world regions industrialised and thereby increased productivity which made it possible to lift more people out of poverty: In 1950 three-quarters of the world were living in extreme poverty; in 1981 it was still 44%. For 2015 – the last year for which we currently have data – research suggests that the share in extreme poverty has fallen below 10%.
That is a huge achievement, for me as a researcher who focuses on growth and inequality maybe the biggest achievement of all in the last two centuries. It is particularly remarkable if we consider that the world population has increased 7-fold over the last two centuries – switch to the ‘Absolute’ view in the visualisation below to see the number of people in and out of poverty. In a world without economic growth, such an increase in the population would have resulted in less and less income for everyone; A 7-fold increase in the world population would have been enough to drive everyone into extreme poverty. Yet, the exact opposite happened. In a time of unprecedented population growth our world managed to give more prosperity to more people and to continuously lift more people out of poverty.
Increasing productivity was important because it made vital goods and services less scarce: more food, better clothing, and less cramped housing. Productivity is the ratio between the output of our work and the input that we put in our work; as productivity increased we benefitted from more output, but also from less input – weekly working hours fell very substantially.
Economic growth was also important because it changed the relationship between people. In the long time in which the world lived in a non-growth world the only way to become better off is if someone else got worse off. Your own good luck is your neighbours bad luck. Economic growth changed that, growth made it possible that you are better off when others become better off. The ingenuity of those that built the technology that increased productivity – the car, the machinery, and communication technology – made some of them very rich and at the same time it increased the productivity and the incomes of others. It is hard to overstate how different life in zero-sum and a positive-sum economy are.
Unfortunately the media is overly obsessed with reporting single events and with things that go wrong and does not nearly pay enough attention to the slow developments that reshape our world. With this empirical data on the reduction of poverty we can make it concrete what a media that would report global development would look like. The headline could be "The number of people in extreme poverty fell by 130,000 since yesterday” and they wouldn’t have this headline once, but every single day since 1990, since, on average, there were 130,000 people fewer in extreme poverty every day."
"The freight train is now on track to stretch up to 3 miles long, with 200 cars or more. And it’s being powered, in part, by an unusual energy source: the activist investor.
Companies have plenty of reasons to keep adding train cars. Long trains save on fuel and crews, reducing the cost of rail transportation.
Longer trains also decrease the volume of trains through communities and improve productivity, said Raquel Espinoza, spokeswoman for Union Pacific Corp. And fewer trains on the network frees up track space for other traffic.
“Railroads thrive on economies of scale,” said Christopher Barkan, professor and director of the railroad engineering program at the University of Illinois in Urbana-Champaign, Ill. “Longer trains are the most important advance in achieving economies of scale in the past quarter century.”
A confluence of pressures—from the long-term decline of coal deliveries to competition from trucking to activist investors—are forcing railroads to improve efficiency and cut costs.
In a nod to activist investors, who have pressed for improved operations and the return of capital to shareholders, major railroads now report average train length with quarterly earnings. CSX Corp. , for instance, in April said its average train length rose 5% in the first quarter from a year earlier, a signal to investors and analysts that the railroad is gaining efficiency.
Operating trains that are double the length of standard size trains involves mastering the distribution of weight and pulling force. The longest, heaviest trains may have four locomotives in front, two in the middle and two at the end.
Some critics say the railroads are moving in the wrong direction, given the demand for faster, more frequent deliveries of smaller batches of raw materials and goods. Long trains take longer to assemble and disassemble in freight yards and can lead to delays on main lines."
"Long trains can block multiple crossings, delaying emergency vehicles and other motorists, as they take 5 minutes or more to go from front to back through a crossing."
"95% of trains are shorter than 10,000 feet."
"Some railroads are adding remotely controlled diesel locomotives at the end or in the middle of superlong trains so that locomotives are both pulling and shoving at the same time. Distributing the locomotive power reduces the heavy loads on the couplers that can break a train in two, improves train handling by reducing slack action and makes brake applications quicker and smoother."
"the fraction of workers employed as independent contractors was 6.9% in May 2017, down from 7.4% in February 2005, the last time the survey was taken. The broadest measure of the share of workers who are contingent—meaning they don’t expect their jobs to last more than an additional year—was 3.8% last year, down from 4.1% in 2005."But also see Don’t Be So Sure the Gig Is Up Contract work has fallen as a share of employment, a BLS study finds: But there are reasons to doubt it by Liya Palagashvili, an economics professor at State University of New York-Purchase . Excerpts:
"Labor data showed a large increase in such contractors working in transportation—think Lyft drivers—and professional and business services, which would capture many on platforms like Thumbtack. Use of independent contractors fell sharply in construction, retail and finance."
"It only asked about a worker’s “main job,” meaning someone moonlighting on TaskRabbit wouldn’t show up. And workers needed to do the work in the past week to count.
A separate study by the JPMorgan Chase Institute found that in 2015, only 33% of those participating in online platforms, such as Uber and Airbnb, earned the majority of their income through such apps and sites. The institute also found it was common for workers to cycle on and off platforms, often working more gigs when other sources of income slowed."
"temps, vendors and contractors, but most of those workers are employees of a contracting firm—not going it alone, and thus not independent."
"independent contract workers are happy, with 79% saying they preferred their current arraignment to traditional work. That could be because independent contractors, on average, earn more than traditional workers.
However, 55% of workers who expected their employment to end in less than a year said they would prefer traditional jobs."
"But there are reasons to doubt the BLS survey, which was last conducted in 2005. The new survey found that as a percentage of all workers, those in alternative employment arrangements—including contract, freelance and on-call work—was lower in 2017 (10.1%) than in 2005 (10.7%).
Does this mean that the gig economy is shrinking? Not necessarily—for three reasons. First, the BLS survey measures only workers whose primary job is a contractor or freelancer. Thus, for example, 69% of Uber drivers are not considered in the BLS study because they also have payroll jobs. Studies by Upwork, McKinsey Global Institute and MBO Partners all account for secondary work and report a significantly higher proportion of freelancers and contractors.
Second, the BLS statistic is a ratio of workers in alternative employment arrangements to the total number of people employed. That can be misleading. As the workforce grows, the denominator increases so that the ratio goes down. In fact, total employment grew more than 10% between 2005-17. Alternative employment, as measured by the BLS, grew only slightly less quickly.
Third, the BLS data may have a sampling bias, because the survey is conducted as an in-person or live telephone interview. Unadjusted differences in traits of contractors and gig workers, such as working longer hours, affects whether they are likely to be absent or missed during the survey, and can lead to undercoverage of that type of worker.
A notable study by economists Lawrence Katz and Alan Krueger used the same questions as the BLS survey, but worked with a different sample population (the RAND American Life Panel) and used an internet survey. It found that alternative employment arrangements as a worker’s primary form of employment grew more than 50% between 2005 to 2015, when they collected their data."
"Science advisers to the federal government say safety regulators are hindering the spread of commercial drones by being too cautious about the risks posed by the flying machines.
The National Academies of Science, Engineering and Medicine said in a report Monday that federal safety regulators need to balance the overall benefits of drones instead of treating them the same way that they oversee airliners.
Academy experts said in a strongly worded report that the Federal Aviation Administration tilts against proposals for commercial uses of unmanned aircraft without considering their potential to reduce other risks and save lives.
For example, they said, when drones are used to inspect cell-phone towers, it reduces the risk of making workers climb up the towers.
The study on the FAA’s work on integrating drones into the nation’s airspace was requested by Congress last year."
"The high-level science board said that the FAA was making “overly conservative risk assessments” about drones by applying the same near-zero tolerance for risk that it uses with other aircraft.
“In many cases, the focus has been on ‘What might go wrong?’ instead of a holistic risk picture” that considers overall risk and benefit, the advisers wrote."
"“The committee concluded that ‘fear of making a mistake’ drives a risk culture at the FAA that is too often overly conservative, particularly with regard to (drone) technologies, which do not pose a direct threat to human life in the same way as technologies used in manned aircraft,” the board experts wrote.
They said that FAA staffers may believe they could endanger their careers by allowing any new risk."
"From Nobel Prize–winning economist Jean Tirole, a bold new agenda for the role of economics in society
When Jean Tirole won the 2014 Nobel Prize in Economics, he suddenly found himself being stopped in the street by complete strangers and asked to comment on issues of the day, no matter how distant from his own areas of research. His transformation from academic economist to public intellectual prompted him to reflect further on the role economists and their discipline play in society. The result is Economics for the Common Good, a passionate manifesto for a world in which economics, far from being a "dismal science," is a positive force for the common good.
Economists are rewarded for writing technical papers in scholarly journals, not joining in public debates. But Tirole says we urgently need economists to engage with the many challenges facing society, helping to identify our key objectives and the tools needed to meet them.
To show how economics can help us realize the common good, Tirole shares his insights on a broad array of questions affecting our everyday lives and the future of our society, including global warming, unemployment, the post-2008 global financial order, the euro crisis, the digital revolution, innovation, and the proper balance between the free market and regulation.
Providing a rich account of how economics can benefit everyone, Economics for the Common Good sets a new agenda for the role of economics in society."
"Only twice in the past half-century has unemployment fallen to its current rate of 3.8%—for a few years in the late 1960s and for one month in 2000.
The ’60s episode spurred years of soaring inflation that would take a decade for policy makers to corral. The latter coincided with a technology bubble that, when it burst, caused the 2001 recession.
The Fed is likely to announce Wednesday it is raising its benchmark short-term interest rate to a range between 1.75% and 2%, the latest in a series of increases aimed at avoiding such outcomes by keeping the economy on an even keel."
"He [Fed chair Powell] and other Fed officials have been studying the low unemployment episode of the 1960s for clues, poring over simulations to understand what might happen if unemployment keeps falling and debating whether traditional models for joblessness and inflation still work. The Fed has long operated under the framework that if joblessness falls too low, rising labor costs dominate and lead to higher inflation."
"Officials seek 2% annual inflation because they view that as consistent with an economy with healthy demand for goods and services.
The employment debate is taking on more urgency because joblessness is expected to keep falling due to a burst of economic stimulus from recent tax cuts and government spending increases.
If hiring and workforce participation trends since January continue, unemployment would reach as low as 3.3% by December, way below Fed officials’ estimates of the level that is sustainable over the long run.
Among the questions preoccupying Mr. Powell: Could a tighter labor market bring in people not already in the job market and raise workforce participation rates? If that happens, the economy will be in a position to draw on those unused resources and keep growing without overheating. That would allow the Fed to raise rates more slowly than it otherwise would.
If there aren’t people outside of the labor market ready to enter, the Fed could raise rates more aggressively. Higher inflation requires tighter credit to keep price pressures in check."
[former chair] "Janet Yellen . . . was convinced that low unemployment rates eventually will lead to higher inflation"
"Key to the Fed’s considerations is an economic concept developed in the late 1960s by Milton Friedman known as the natural rate of unemployment. Some economists believe this level balances the supply and demand for labor, and that below it, inflation accelerates"
"Their estimate tumbled from 5.1% three years ago to 4.7% last year to 4.5% in March."
"Officials now seem less sure that low interest rates will keep boosting workforce participation"
"Mr. Powell has said the natural rate of unemployment could be anywhere from 3.5% to 5%."
"the Phillips curve has been flat for the past 20 years, meaning big swings in unemployment haven’t significantly affected U.S. inflation."
"A few Fed officials have grown skeptical of the central bank’s devotion to the Phillips curve"
"They hesitate to rely on a model that would have called for more aggressive interest-rate rises in 2015 and 2016, because the jobless rate implied inflation would soon heat up. In fact, millions of Americans found jobs and inflation remained low."
"A second group of officials rejects this thinking. They say unemployment is well below a sustainable level. They worry it is just a matter of time before imbalances emerge—either excess inflation or financial bubbles—and if they wait until then, they will have to raise rates aggressively, causing a recession."
"Looking at city-level data, economists found inflation picked up more quickly once the jobless rate fell below 3.75%. One of the researchers, UBS’s Mr. Detmeister, said the paper argues for maintaining the Fed’s current approach of raising interest rates with the goal of anticipating where the economy will be 12-to-24 months ahead."
"Many Fed officials . . . say globalization, technology and demographic changes mean a low-unemployment economy may not face the same price pressures as it did in the 1960s."
"Today’s economy has more college-educated workers than in the past, which depresses the natural rate of unemployment because they have lower unemployment rates than others."
"In the 1960s and 1970s, if inflation went up one year, consumers expected it to rise by at least as much the following year. Officials believe such expectations can be self-fulfilling as workers demand pay increases and businesses raise prices in anticipation.
But in the early 1980s, the Fed ratcheted interest rates up into the double-digits, slowing inflation dramatically by pushing the economy into a severe recession. It demonstrated the central bank’s commitment to keep prices in check, and the approach has held since then.
Fed research published in 2016 used the 1960s experience to measure the point where inflation pressures begin to harm the economy, including by leading expectations of higher prices to become self-reinforcing as they did in the 1970s. The research, which was presented to Mr. Powell, concluded this happens when inflation rises by 3% on a sustained basis, using the Fed’s preferred gauge and excluding volatile food and energy categories. Using this gauge, inflation is currently rising 1.8%.
Given the anchoring of inflation expectations, Mr. Kashkari said it is no surprise that inflation is unresponsive to low unemployment today. “The more credibility we have with the market and with employees and employers, the less responsive they are going to be to minor changes in the economy,” he said."Related posts:
"Just to be clear, the relative price of good A to good B is PA/PB. If there is inflation and one of the two prices is stickier than the other, then the two prices will change at different rates in response to inflation. This pushes relative prices away from their fundamental values, and this in turn distorts resource flows (which leads to losses and unemployment as resources are subsequently reallocated). The higher the inflation rate, the faster these prices become distorted and the higher the subsequent costs. This is not the only cost of inflation, but on this basis alone it's likely that at some point the costs of inflation will exceed the benefits. The hard question is where the breakpoint is (partly because we don't have good estimates of either the costs or the benefits, so it's possible to support most any position by picking and choosing among the empirical studies). I'd be very uncomfortable with a rate over 4%, 4% itself seems a bit high, but 3% isn't so hard to accept."
