Hutchins Roundup: Pandemic labor exits, college financial aid, and more

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.

Labor force exits less persistent during pandemic recession than during Great Recession

Using the Current Population Survey, Victoria Gregory of the Federal Reserve Bank of St. Louis tracks employment outcomes of workers who lost their jobs during the pandemic recession and the Great Recession. People who lost their jobs were about equally likely to be employed again within three months during the two recessions, but job losers were about 10 percentage points less likely to exit the labor force after three months in the pandemic recession than in the Great Recession, suggesting that the pandemic was viewed as a more temporary shock. While those exiting the labor force were disproportionately female, less educated, and older in both recessions, the share of exits by college-educated workers was much higher during the pandemic recession than during the Great Recession—27% versus 17%. So was the share of older workers—with nearly 40% of exiters during the pandemic recession close to retirement age versus 30% in the Great Recession. The author finds that labor force exits were less persistent during the pandemic recession: 42% of people who exited the labor force within 3 months of losing their job during the pandemic had returned to the labor force one year later, compared to just 19% during the Great Recession.

Financial aid calculations disproportionately benefit white and upper-income students

College financial aid applications don’t ask about race, but that doesn’t guarantee that financial aid awards are race neutral. Phillip Levine of Wellesley and Dubravka Ritter of the Philadelphia Fed find that the exclusion of retirement savings and home equity in financial aid calculations boosts financial aid awards for white and upper-income families. White families have larger retirement savings and more home equity than Black and Hispanic families at every income level, and high-income families hold a higher proportion of their wealth in these assets. As a result, the exclusion of these assets saves the median white, high-income family over $15,000 on college expenses annually, while the median Black, low-income family saves approximately $0. The authors suggest that the gap in these implicit subsidies, which allows white students at each income level to attend college more easily than their Black and Hispanic counterparts, may account for 10 to 15% of the racial gaps in educational attainment and student loan burden.

How private forecasters perceive Fed’s monetary policy rule

Michael Bauer of Universität Hamburg, Carolin Pflueger of the University of Chicago, and Adi Sunderam of Harvard Business School use individual, professional macroeconomic forecasts from 1985 to 2021 to estimate the forecasters’ perceptions of the Federal Reserve’s monetary policy rule. While previous work has quantified long-run perceptions of the monetary policy rule, the researchers’ novel metric captured high-frequency monthly changes. During periods of monetary tightening, forecasters overwhelmingly associated a smaller output gap with a higher Fed funds rate. This relationship is much weaker during periods of monetary easing. Overall, this suggests that monetary easings are perceived to be quick and surprising while tightenings are perceived to be gradual and data dependent.

Chart of the week: Mortgage rates at highest level in over a decade

30-Year Conforming Mortgage Fixed Rates, 2009 – 2022

Chart Courtesy of Mortgage News Daily

Quote of the week:

“There are reasons to be somewhat more optimistic about the ability to achieve the necessary slowing of demand without leading to a significant downturn, this time around. Household and business balance sheets are considerably stronger than in previous tightening cycles… Firms seem to have too few workers, not an excess, suggesting that this time a slowdown in activity may have a smaller impact on employment,” says Susan M. Collins, President and CEO of the Federal Reserve Bank of Boston.

“Despite these potentially more favorable conditions, there are of course also downside risks to the outlook. A significant economic or geopolitical event could push our economy into a recession as policy tightens further. Moreover, calibrating policy in these circumstances will be complicated by the fact that some effects of monetary policy work with a lag.”

The Brookings Institution is financed through the support of a diverse array of foundations, corporations, governments, individuals, as well as an endowment. A list of donors can be found in our annual reports published online here. The findings, interpretations, and conclusions in this report are solely those of its author(s) and are not influenced by any donation.