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Bulk of Black-white disparity in receipt of unemployment benefits is driven by differences in take-up
Prior to the pandemic, Black individuals were 24% less likely to receive unemployment benefits after leaving a job than white individuals. By combining state-level regulations for unemployment insurance from 1986 to 2015 with data on individuals’ work histories and benefit receipt from the Survey on Income and Program Participation, Elira Kuka of George Washington and Bryan Stuart of the Philadelphia Fed find that 80% of this gap stems from differences in take-up of benefits among those eligible for unemployment insurance, not differences in eligibility. Some 42% of eligible Black individuals took unemployment benefits compared to 55% of eligible white individuals. The single most important explanation the authors find for this gap is that Black workers tend to have lower pre-unemployment earnings, and workers with higher pre-unemployment earnings are more likely to apply for unemployment benefits. Black workers are also more likely to live in the South, which the authors show accounts for about a fifth of the Black-white take-up gap—perhaps capturing “regional differences in the complexity of UI applications, interactions between unemployed individuals and UI case workers, the extent to which employers contest former workers’ UI claims… or historical factors that affect Black individuals’ trust in the government,” the authors suggest.
Good measures of underlying inflation are relatively stable and inversely correlated with economic slack. The Federal Reserve’s primary measure of core inflation excludes food and energy prices to smooth through volatility. Laurence M. Ball of Johns Hopkins and co-authors find this measure has been nearly as volatile as headline inflation during 2020 and 2021. Measures that exclude a larger fixed set of industries, such as the Atlanta Fed’s sticky-price inflation rate, and, particularly, measures that filter out large price changes in any industry, such as measures maintained by the Cleveland and Dallas Fed banks are less volatile. This is true both before and during the pandemic. The alternative measures of inflation, particularly the ones that filter out unusually large price changes, were also more closely correlated with measures of economic slack. In light of these results, the authors argue that the Federal Reserve should reconsider its preferred measure of core inflation.
Comparing German survey data on workers’ beliefs about their job to administrative data, Simon Jäger of MIT and co-authors find that workers tend to be misinformed about the potential wage gains from switching jobs. In particular, workers in low-wage firms underestimate the wages offered by other firms for their occupation. Workers in high-wage firms hold more accurate beliefs, just slightly overestimating wages at their outside option. Acquiring information about the wage distribution can be costly, the authors suggest, enabling low-wage firms to suppress wages while still retaining workers. They estimate that if workers accurately judged the quality of their outside options, at least 10% of the jobs in Germany at their current wages would be eliminated, primarily in the low-wage sector. Pay transparency laws and greater sharing of salary information among workers may alleviate such misperceptions, the authors suggest.
“While I’ve heard businesses complain of worker shortages for years—they tend to do so any time they can’t find skilled workers at wages they are used to paying—this current environment seems different, because by many measures, demand for workers appears to be outstripping the supply of workers. One way of assessing the balance between supply and demand in a market is to look at the price—which, in the case of labor, means looking at wages and compensation. Wages are now climbing rapidly across various income categories, with the highest increases for lowest-income workers… One of my lessons from the prior recovery is that the vast majority of Americans want to work if given the chance to get a decent job at a decent wage. But how long it is going to take for all prior workers to return is unclear. For now, at least, it appears demand for workers exceeds the supply of workers,” says Neel Kashkari, President of the Minneapolis Fed.
“I have a lot of confidence that the demand shock will soon subside, but I have less confidence in how quickly supply will return to normal. Fundamentally, I believe it is more likely we end up back in the low-inflation regime that we were in for 20 years than a new high-inflation regime. However, the costs of ending up in the high-inflation regime are likely larger than the costs of ending up back in the low-inflation regime. But we shouldn’t forget that there are significant costs with either error, and that those costs will likely fall on those Americans who can least afford to bear them… I supported the FOMC’s [Federal Open Market Committee] decision in December to increase the speed of tapering. Given the high inflation we are experiencing, this seemed like a prudent decision that provides flexibility in the future for raising rates sooner if necessary. I brought forward two rate increases into 2022 because inflation has been higher and more persistent than I had expected.”
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