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Hutchins Roundup: Reduced worker hours, home price-rent ratios, and more

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What’s the latest thinking in fiscal and monetary policy? The Hutchins Roundup keeps you informed of the latest research, charts, and speeches. Want to receive the Hutchins Roundup as an email? Sign up here to get it in your inbox every Thursday.

Post-pandemic, workers reduce hours without leaving labor force

A decline in aggregate hours worked can reflect fewer people working or individuals working fewer hours a week. Dain Lee, Jinhyeok Park, and Yongseok Shin of Washington University in St. Louis find that the decrease in the aggregate number of hours worked in 2022 largely reflects a decline in the number of hours worked by individual workers, not exits from the labor market. This pattern differs from the Great Recession and its aftermath, during which hours were mostly determined by the number of people employed. The available evidence indicates that the recent reductions are mostly voluntary and were largest among prime-age men with bachelor’s degrees, who had been working the most hours of any demographic prior to the pandemic. The authors also point to survey data indicating that the hours reductions “will likely stay with us,” thus suggesting that the unemployment rate and labor force participation rate, which don’t account for changes in hours worked, will remain imperfect measures of labor market tightness.

Recent home price growth is likely driven by shifting preferences, not market exuberance

Price-rent ratios are frequently used to understand the forces driving home price movements. But rental units and owner-occupied housing often differ in fundamental ways, making it difficult to construct an accurate price-rent index using owner-occupied home prices. Lara P. Loewenstein of the Federal Reserve Bank of Cleveland and Paul S. Willen of the Federal Reserve Bank of Boston address this issue using data that match rents with rental property prices. The authors find that high price-rent ratios that characterized the early 2000s home price boom were consistent with exuberant market expectations of rising property values. Recent home price growth, however, has been driven primarily by increases in real rents and reflects only small gains in price-rent ratios. A change in consumer preferences due to greater work-from-home options is a “logical and plausible explanation for the 2020s housing boom,” the authors conclude.

Relief narrowed inequality over the pandemic

Using a large random sample of tax data, Jeff Larrimore of the Federal Reserve Board and Jacob Mortenson and David Splinter of the Joint Committee on Taxation measure the effects of the COVID recession and policy response on the income distribution in the U.S. They find that the COVID recession was more regressive than the Great Recession, but the policy response was much more progressive; on net, income inequality declined about 10% between 2019 and 2021 as measured by a Gini coefficient. Real median wages for the bottom income quintile fell 26% from 2019 to 2021, but overall income rose 62% because of strong COVID relief. Over the same period, middle and high-quintile median real income rose 8% and 1%, respectively. In contrast, the Great Recession and policy response led to real losses across the entire income distribution. Pandemic unemployment insurance explains about two-thirds of the income stabilization and much of the drop in inequality because the insurance was more progressive than other relief.

Chart of the week: US natural gas exports are booming

Line graph of yearly U.S. exports and imports of natural gas, in trillions of cubic feet, from 1950 to 2021. Imports were low in the 1950s, rising to around 1 trillion cubic feet in the 1970s and 1980s, and then rising again to a peak of around 4.5 trillion cubic feet in the mid-2000s before dropping to their current level, which has remained steady over the past decade, of just under 3 trillion cubic feet per year. Exports were initially very low, beginning to grow after 2000. In 2017, exports exceeded imports for the first time. They have risen yet more rapidly since 2017, climbing to over 6.5 trillion cubic feet in 2021.

Chart courtesy of the Wall Street Journal

Quote of the week:

“Decisions about policies to directly address climate change should be made by the elected branches of government and thus reflect the public’s will as expressed through elections. At the same time, in my view, the Fed does have narrow, but important, responsibilities regarding climate-related financial risks. These responsibilities are tightly linked to our responsibilities for bank supervision. The public reasonably expects supervisors to require that banks understand, and appropriately manage, their material risks, including the financial risks of climate change,” says Jerome Powell, Chair of the Federal Reserve.

“But without explicit congressional legislation, it would be inappropriate for us to use our monetary policy or supervisory tools to promote a greener economy or to achieve other climate-based goals. We are not, and will not be, a ‘climate policymaker.’”

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