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Hutchins Roundup: Gaming innovations and labor, disappointing output recovery, and more

Vivien Lee and Louise Sheiner

Studies in this week’s Hutchins Roundup find that young males have decreased their labor supply because of improvements in video games, interest-rate sensitive industries performed relatively well post-crisis, and more.

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Gaming innovations have decreased hours worked for young males

Over the last 15 years, work hours for men ages 21-30 decreased more than work hours for older men. Could higher quality video games explain this trend? Assessing data on Americans’ time use from 2004-2015, Mark Aguiar from Princeton and colleagues from the University of Chicago and University of Rochester find that gaming and recreational computing innovations caused young men to reduce work hours by 1.5 to 3 percent, accounting for 40 to 80 percent of the differential decline in hours between young and older men. Shifting leisure preferences may partially account for high unemployment persisting after recessions, they say. They also find that, despite stagnant wages and declining employment rates, young men reported increased happiness during the 2000s, suggesting a role for improved leisure options.

New approach finds unconventional monetary policy was effective

From 2008-2015, the federal funds rate was constrained by the zero lower bound and the Fed turned to unconventional monetary policies to stimulate the economy. Arsenios Skaperdas of the Federal Reserve uses industry-level data on publicly-listed firms to examine the success of this approach.  He finds that, despite the zero bound constraint, interest rate sensitive industries (like construction) performed better than industries usually less affected by monetary policy, and argues that no other plausible shocks can explain this pattern. He concludes that the combination of zero interest rates and unconventional monetary policy increased economic activity in a fashion comparable to previous U.S. recoveries.

Disappointing recovery reflects pre-recession forces rather than cyclical factors

Even though U.S. unemployment has returned to pre-2008 crisis levels, output growth has been much slower than anticipated. John Fernald of the San Francisco Fed and co-authors from Harvard, Princeton, and Stanford find that, by 2016, business output was about 13.5 percent lower than what one may have expected based on pre-recession trends, and argue that that this shortfall is almost fully explained by a combination of slow productivity growth and declining labor force participation. The authors argue that these adverse forces predate and are largely unrelated to the financial crisis and recession, suggesting that output growth likely will remain subdued for the foreseeable future.

Chart of the week: GOP efforts to repeal and replace ACA has led to volatility in health care stocks

ES_20170712_HutchinsChartofWeek

Quote of the week:

“The Committee continues to expect that the evolution of the economy will warrant gradual increases in the federal funds rate over time to achieve and maintain maximum employment and stable prices. That expectation is based on our view that the federal funds rate remains somewhat below its neutral level—that is, the level of the federal funds rate that is neither expansionary nor contractionary and keeps the economy operating on an even keel,” says Fed Chair Janet Yellen.

“Because the neutral rate is currently quite low by historical standards, the federal funds rate would not have to rise all that much further to get to a neutral policy stance. But because we also anticipate that the factors that are currently holding down the neutral rate will diminish somewhat over time, additional gradual rate hikes are likely to be appropriate over the next few years to sustain the economic expansion and return inflation to our 2 percent goal. Even so, the Committee continues to anticipate that the longer-run neutral level of the federal funds rate is likely to remain below levels that prevailed in previous decades.”

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