Fall 2013 Brookings Panel on Economic Activity
The Fall 2013 Brookings Panel on Economic Activity took place September 19-20, 2013 at the Brookings Institution's Falk Auditorium in Washington, DC. The conference agenda is available for download and panels were live-tweeted under the Chatham House rule using hashtag BPEA.
New research findings at the Fall 2013 BPEA conference by leading academic and government economists include: the effects of expanding preschool enrollment, the current lull in U.S. healthcare spending, offshoring and the declining U.S. labor share, “jobless recoveries” and the persistence of unemployment, improvements in economic forecasting and Latvia's economic response to the global financial crisis.
Universal Preschool Increases Enrollment, But Crowds Out Private Preschool for the Well-Off
Lower-income children’s test scores significantly improved; no increase in maternal labor force participation
Expanding access to preschool programs, as advocated in President Obama’s “Preschool for All” initiative, would have positive effects on the preschool enrollment of all 4-year olds, but if access is free regardless of income, it could lead many children to switch out of the private system and into the free public program. With about half of the enrollees with more-educated mothers switching out of private preschool, costs of the program to taxpayers could increase as much as 19 percent. The authors find modest, sustained increases in the eighth-grade math test scores of lower-income children, but conversely, among higher-income children, there are no positive impacts of the program on student achievement.
Read more »
Download the paper »
Healthcare Costs Will Continue to Grow at GDP +1.2 Percent for Foreseeable Future, According to New Brookings Paper
Current moderation won’t last; healthcare cost curve bending, but slowly
The current lull in healthcare spending in the U.S. is unlikely to last, with the sector continuing to grow 1.2 percent above real GDP growth for the coming decades -- an improvement of half over the recent average -- but even growth by this amount means that the healthcare sector will constitute close to 25 percent of GDP in 20 years, meaning that it is unlikely that the healthcare cost curve can “bend” dramatically. The authors find that the recent moderation in healthcare spending from 2007-2013 is likely to be an exception, and not caused by the Great Recession, given that hiring in the healthcare sector has not slowed down, and labor costs account for over half of overall health care expenditures. They also note that the government and the private sector have been exhibiting very different dynamics during this recent moderation period: private insurance prices escalated, causing private patients to consume less, whereas Medicare, as an entitlement program, was untethered from the economic downturn. In addition, they note that technology is the primary driver of increasing healthcare costs, with little evidence of slowdowns in this field any time soon.
Read more »
Download the paper »
Offshoring Linked to Declining U.S. Labor Share, Likely to Continue, New Brookings Paper Finds
Manufacturing and trade sectors causing most recent drops; ACA could drive further declines
The decline in the U.S. labor share—now at its lowest level in the post-war period after the Great Recession—has been concentrated in sectors that face increased import competition in the wake of the overall rising role of imports in the U.S. economy, and if globalization continues apace, the labor share will most likely continue to decline, especially in sectors that face the largest increases in foreign competition. The authors find that the decline in the percent of unionized workers in the workplace is, in fact, not a major cause of the decline of the labor share; that because of the way self-employment income is estimated, the headline measure overstates the decline by one-third; that the declining share is not merely a recent phenomenon; and that there is limited evidence that the share is dropping due to the substitution of capital for unskilled labor to exploit technical change embodied in new capital goods. In addition to the fact that developments in certain industries affect the aggregate labor share, particular types of legislation, such as the Affordable Care Act, are also likely to drive movements in the near future, they note.
Read more »
Download the paper »
“Jobless Recoveries” Likely in U.S. Future, Much Like in Europe, New Brookings Paper Finds
Current recovery a continuation of previous jobless trends, but underlying source remains unknown
In each of the three most recent U.S. recessions, the unemployment rate has stayed high for longer and longer durations, increasingly resembling the experience of many West European countries in the 1980s, and as a result, discretionary fiscal policy responses should target longer-lived projects rather than transitory transfer payments. The authors rule out the many past explanations for why the rise in unemployment in the most recent recession has been so prolonged: it was not the financial nature of the shock nor the inability of wages to fall, nor the oft-cited decline in interstate mobility, nor the aging of the population. Instead, they point to two factors: rapid turns toward contractionary policies after the ends of the recessions, as well as a changing American culture toward work, government and society. But neither force can fully account for the rise in U.S. unemployment persistence over time, and both should have been more than offset by the other factors such as mobility and demographics.
Read more »
Download the paper »
Improving Seasonal Adjustment Would Make for Better Economic Forecasting
Would lead to fewer economic false signals, better policymaking
A sharp downturn in the economy, like that experienced recently, has distorted government statistics. The problem is that the procedures used to correct raw data for seasonal fluctuations can too easily confuse the downturn with a change in seasonality. Indeed, this is a more general problem. The authors show that the statistical authorities would produce more useful economic data if they adjusted their seasonal adjustment procedures to constrain seasonal factors to vary less over time than current practice. The paper has important implications for how to interpret month-to-month movements in all of our major economic time series.
Read more »
Download the paper »
Hard to Draw Wider EU Lessons from Latvia’s Economic Policies Post-Financial Crisis
But country rebounded from the Great Recession well.
In spite of the fact that Latvia is a small country, it has been an object of intense attention during the financial crisis because of the economic policies it put in place to get its economy back on track. By maintaining its currency peg, adjusting through internal devaluation and front loading fiscal austerity, this nation of 2 million is now, 5 years later, back on a strong economic footing, although it may have been quite painful to get there. Latvian policymakers, like those elsewhere, reacted too late to the boom; had good relations with parent banks; avoided a large decline in output thanks to deviations from strict currency board rules; had quick productivity gains; and for political purposes, output growth may matter as much or more than its level. In addition, the authors believe the case for Latvia joining the Eurozone next year is a strong one, perhaps more so than for some of the existing members.
Read more »
Download the paper »