Hutchins Roundup: Unemployment insurance, climate action, and more 


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State UI rules generate racial inequality  

Differences in state rules regarding unemployment insurance (UI) create a gap between what white and Black claimants receive, find Daphné Skandalis of the University of Copenhagen and co-authors. Using administrative data from audits of UI claims, the authors decompose the gap in various measures of UI outcomes between Black and white claimants into three components: one explained by differences in work history, one explained by differences in UI rules across states, and one unexplained by work history and state rules. They find that the ratio of benefits to prior wages is 18% lower for Black claimants than for white claimants, with 8 percentage points of this difference explained by differences in rules across states. They also show that states with the largest shares of Black workers would see the largest overall welfare increases from more generous UI rules, in part because the drop in income is higher in states with a large Black population. The design of UI rules, the authors conclude, plays a key role in generating racial inequality.  

Support for climate action varies internationally 

While most people have basic knowledge of climate change, there are substantial policy disagreements within and across countries, find Antoine Dechezleprêtre of the OECD and co-authors. The authors ask over 40,000 respondents in 20 countries about their knowledge of climate change and support for policy actions. They find that support for climate policies is most closely linked to respondents’ perceptions of a policy’s effectiveness, its progressivity, and its financial impact on their own household. Additionally, they find greater support for climate action in middle-income countries (such as China, India, and Brazil) and among respondents who are left-leaning, college-educated, and who use public transportation. However, these demographic characteristics only account for a small share of the variation in respondents’ views. To assess the role of information in support for climate action, the authors randomly assign educational videos to a subset of respondents. They find that explaining potential policy solutions is a more effective treatment than providing general information about the effects of climate change. 

A new interpretation of productivity growth dynamics 

Following a decade of slow growth, productivity growth surged in the first year of the pandemic, but then fell back in 2021 and 2022. Robert Gordon of Northwestern and Hassan Sayed of Princeton propose a new framework to understand changes in productivity growth across the business cycle. They argue that firms overreact to recessions and fire too many staff, which increases productivity growth as fewer workers stretch to do more; as the economy recovers and firms hire more workers, productivity is depressed, a phenomenon which they argue explains the very low productivity growth from 2010-2019. The authors show their model forecasts productivity accurately during the pandemic, with the surge in 2020 reflecting excess layoffs and the slow subsequent growth reflecting rehiring. Delving into the sources of productivity growth over the course of the pandemic, they find that productivity rose significantly in work-from-home services but fell in other services.  

Chart of the week: US consumer sentiment is near record lows 

Line chart showing the Consumer Sentiment Index from the University of Michigan from 1980 to present

Chart courtesy of The Wall Street Journal 

Quote of the week:  

“We know that supply shortages and bottlenecks, including the tight labor market, have contributed to the high inflation readings we are observing. We also know that the surge in demand during the pandemic that was driven by excess saving, significant fiscal stimulus, and accommodative monetary policy also has contributed to the high inflation we are now experiencing … But the causes of inflation don’t affect my approach to policy because in writing the FOMC’s [Federal Open Market Committee] mandate, Congress did not say ‘Your goal is price stability unless inflation is caused by supply shocks, in which case you are off the hook.’ We want to reduce excessive inflation, whatever the source, in part because whether it comes from supply or demand, high inflation can push up longer-run inflation expectations and thus affect spending and pricing decisions in the near term. These decisions can then push up prices even more and make inflation harder to get under control,” says Christopher Waller, Member, Federal Reserve Board of Governors. 

“Based on what we know about inflation today, I expect that further increases in the target range will be needed to make monetary policy restrictive, but that will depend on economic data in the coming weeks and months… I anticipate a decline in inflation will come as actual and anticipated hikes by the FOMC cool demand for products and labor, which will help demand and supply come into a better balance. The decline in the rate of inflation will also be assisted by continued improvement in goods supply bottlenecks, which is occurring in some sectors, and an increase in labor force participation, which is still significantly lower than it was before the pandemic. I hope these supply recoveries happen, but my expectations for policy don’t rely on it. I expect rate increases will continue after July at a pace that is dependent on the incoming data.” 

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