Hutchins Roundup: Worker migration, mortgage access disparities, and more
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Skilled workers leave areas dominated by few employers
Using county-level data over the 1980-2010 period, Matthew E. Kahn at the University of Southern California and Joseph Tracy of the Federal Reserve Bank of Dallas find that skilled workers tend to move away from areas with high levels of monopsony power (where a single or few employers dominate the local labor market), leading to a “brain drain” and a decrease in the average skill level of the remaining population. Specifically, counties with a one-standard deviation higher employment concentration experience population growth over the next 10 years that is 0.88 percentage point lower than other counties as workers migrate to more competitive areas. These counties experience a 4%-4.4% decline in the share of individuals aged 26 to 35 and a 16.7%-18.2% decline in the share of individuals holding a college degree or higher. The authors note that the rise of work-from-home arrangements due to the pandemic may allow younger and more-educated workers to reside in monopsony areas without facing lower wages, possibly making the areas less likely to “deskill.”
Older mortgage refinance applicants are rejected more often
As the U.S. population ages, senior citizens’ ability to access credit is an increasingly important policy concern. Examining millions of mortgage applications, Natee Amornsiripanitch of the Philadelphia Federal Reserve finds that older mortgage refinance applicants are more frequently rejected than their younger counterparts with similar credit characteristics. From the age of 25 onwards, “rejection probability increases smoothly with age and accelerates in old age.” The probability of rejection is higher for men than women, and the gap increases over time. Older borrowers’ mortgages also had slightly higher interest rates. The author finds that insufficient collateral—when the value of a property is low compared to the requested loan amount—was the most common reason for rejections for older borrowers. The author suggests that age may be as big a barrier to getting a mortgage as race or ethnicity.
COVID caution explains worse labor market outcomes for Asian Americans
While Asian Americans have typically fared well during previous economic recessions, they experienced disproportionately large increases in unemployment during the COVID-19 pandemic. Chris de Mena of the University of California, Davis, Suvy Qin of the University of California, Berkeley, and Jing Zhang of the Federal Reserve Bank of Chicago attribute this phenomenon to greater caution among Asian Americans about COVID-19 infections and, thus, more selectivity about job opportunities. Using cellphone data from SafeGraph, the authors find that mobility is reduced by 0.17 percentage points for each percentage point increase in the Asian share of an area’s population. Three-quarters of this decline comes from reduced non-work mobility, suggesting that this reflects increased COVID caution rather than worse labor market opportunities.
Chart of the week: Yield on US 2-year Treasury plunges amid banking woes
Source: Trading Economics
Quote of the week:
“Often, when innovation is discussed within the context of the banking system, the focus is not on traditional banks engaged in core banking activities, like taking retail deposits and making loans. I think this perception misses the mark. Innovation has always been a priority for banks of all sizes and business models…. Innovation has the potential to make the banking and payments systems faster and more efficient, to bring new products and services to customers, and even to enhance safety and soundness. Yet, some have criticized the banking regulators for being hostile to innovation, at least when that innovation occurs within the regulated financial system. Regulators are continually learning about and adapting to new technologies, just as banks are, and regulators can play an important, complementary role, making the regulatory rules of the road clear and transparent to foster bank innovation,” says Michelle Bowman, Governor, Federal Reserve Board.
“Along with presenting new opportunities, innovation can introduce new risks and create new vulnerabilities. Banks, and really, any business today that adopts new technologies must be prepared to make corresponding improvements to manage these risks and vulnerabilities, including improvements to risk management, cybersecurity, and consumer compliance. Regulators must continue to promote efforts that are consistent with safe and sound banking practices and in compliance with applicable laws, including consumer protection laws….[T]his is not always an easy task, and the regulatory response to innovation must reflect the changes in how banks engage in this process.”
“It is absolutely critical that innovation not distract banks and regulators from the traditional risks that are omnipresent in the business of banking, particularly credit, liquidity, concentration, and interest rate risk. These more traditional risks are present in all bank business models but can be especially acute for banks engaging in novel activities or exposed to new markets, including crypto-assets. Whatever the cause, many traditional risks can be mitigated with appropriate risk-management and liquidity planning practices, and effective supervision, and without stifling the ability of banks to innovate.”
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