Search Results
Working Paper
On the implementation of Markov-perfect monetary policy
The literature on optimal monetary policy in New Keynesian models under both commitment and discretion usually solves for the optimal allocations that are consistent with a rational expectations market equilibrium, but it does not study whether the policy can be implemented given the available policy instruments. Recently, King and Wolman (2004) have provided an example for which a time-consistent policy cannot be implemented through the control of nominal money balances. In particular, they find that equilibria are not unique under a money stock regime and they attribute the non-uniqueness ...
Working Paper
The role of real wages, productivity and fiscal policy in Germany's Great Depression 1928-1937
We study the behavior of output, employment, consumption, and investment in Germany during the Great Depression of 1928-37. In this time period, real wages were countercyclical, and productivity and fiscal policy were procyclical. We use the neoclassical growth model to investigate how much these factors contribute to the Depression. We find that real wages, which were significantly above their market clearing levels, were the most important factor for the economic decline in the Depression. Changes in productivity and fiscal policy were also important for the decline and recovery. Even ...
Journal Article
Why Labor Force Participation (Usually) Increases when Unemployment Declines
Unemployment and labor force participation (LFP) are usually negatively correlated over the business cycle, that is, once the unemployment rate starts to decline the LFP rate starts to increase after about half a year. Using gross flow data on labor market transitions, we show that this cyclical co-movement pattern between the unemployment rate and the LFP rate can be attributed to two factors. First, low unemployment rates imply a low average exit rate from the labor force, which in turn increases the LFP rate. Second, transition rates from out-of-the-labor-force to employment without an ...
Briefing
Assessing the Effect of the Affordable Care Act on Part-Time Employment
The Patient Protection and Affordable Care Act of 2010, commonly known as the Affordable Care Act or ACA, requires larger employers to offer health insurance to their full-time workers or pay penalties for failing to do so. Under some circumstances, the law creates an incentive for employers to replace full-time labor with part-time labor. This Economic Brief considers recent research on whether the ACA has in fact increased the use of part-time labor.
Briefing
Will a Surge in Labor Force Participation Impede Unemployment Rate Improvement?
The labor force participation rate has been falling since 2000, a trend that accelerated somewhat during the recession of 2007-09. Some economists and journalists have questioned whether recent improvements in the labor market will cause non-participants to re-enter the labor force at a faster rate, thus offsetting job growth and impeding further declines in the unemployment rate. But recent worker-flow research suggests that this scenario is unlikely.
Briefing
The Pandemic's Impact on Unemployment and Labor Force Participation Trends
Following early 2020 responses to the pandemic, labor force participation declined dramatically and has remained below its 2019 level, whereas the unemployment rate recovered briskly. We estimate the trend of labor force participation and unemployment and find a substantial impact of the pandemic on estimates of trend. It turns out that levels of labor force participation and unemployment in 2021 were approaching their estimated trends. A return to 2019 levels would then represent a tight labor market, especially relative to long-run demographic trends that suggest further declines in the ...
Working Paper
Disincentive Effects of Unemployment Insurance Benefits
Unemployment insurance (UI) acts both as a disincentive for labor supply and as a demand stimulus which may explain why empirical studies often find limited effects of UI on employment. This paper provides independent estimates of the disincentive effects arising from the largest expansion of UI in U.S. history, the pandemic unemployment benefits. Using high-frequency data on small restaurants and retailers from Homebase, we control for local demand effects by comparing neighboring businesses that largely share the positive impact of UI stimulus. We find that employment in low-wage businesses ...
Briefing
How Did Pandemic UI Benefits Affect Employment Recovery in Local Industry Markets?
We analyze the employment recovery of low-wage establishments relative to the employment recovery of high-wage establishments within local labor markets, and we find a slower recovery in low-wage establishments. We associate the difference with the expanded generosity of pandemic unemployment insurance (UI) supplements, which have a larger negative effect on the job-filling rate of low-paying establishments. We use a model of labor search to translate our establishment-level observations into a disincentive effect of pandemic UI benefits at the worker level.
Journal Article
The IT revolution : is it evident in the productivity numbers?