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Hutchins Roundup: Unemployment insurance, fintech lending, and more

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Cuts to state unemployment benefits boost job growth and depress wages

Comparing jobs at the same firms across states, Gordon Dahl of the University of California, San Diego, and Matthew M. Knepper of the University of Georgia find that reductions in state unemployment insurance (UI) generosity result in faster job growth but slower wage growth. The authors find that following a 50% decline in North Carolina’s UI generosity in 2013, multi-state firms experienced 2.4% faster job growth and paid 7.2% lower starting wages at their establishments in North Carolina than at their establishments in other states. Using data from online job postings, the authors also find that the North Carolina establishments offered 5.5% lower wages for the same job compared to other-state counterparts. The authors find similar results of smaller magnitude for establishments across six additional states that had modest cuts to state UI benefits compared to North Carolina. The findings imply that reductions in UI benefits reduce worker bargaining power by making it more costly to remain unemployed. As such, the employment and fiscal benefits of less generous UI programs must be considered alongside lower wage growth driven by “current job seekers settling for worse jobs or the same jobs at lower pay”, the authors conclude.

Comparing big tech and conventional lending

Small and medium-sized businesses are more likely to use “big tech” lenders to satisfy short-term liquidity needs than to obtain longer-term financing, find Lei Liu of the Chinese Academy of Social Sciences and co-authors. The authors compare syndicated loans extended by MyBank, a subsidiary of Chinese internet giant Alibaba, to conventional loans issued by a partnering retail bank. Relative to the retail bank, the authors find that the big tech lender serves more first-time borrowers, younger borrowers, and borrowers with limited access to credit. The authors also find that the big tech loans have smaller principal amounts, higher interest rates, faster speeds of repayment, higher delinquency rates, and lower rates of collateralization than the conventional loans. The authors argue that these distinctions between big tech and conventional loans are not driven by differences in the credit risk of borrowers, as they find similar trends in the pool of borrowers with access to both services. They conclude that “big tech” lending — a growing market in the U.S. and globally — has the potential to extend credit to borrowers underserved by traditional banks.

Mothers consume less calories when children age out of WIC

The federal Special Supplemental Nutrition Program for Women, Infants, and Children (known as WIC) provides food to low-income pregnant, postpartum, and breastfeeding women and their children up to age five. Marianne Bitler of the University of California at Davis and co-authors use the National Health and Nutrition Examination Study to evaluate what happens to families’ nutrition when a participating child turns five. The authors find that aging out of the program has no effect on the caloric or nutritional intake of the children. However, women aged 20 to 50 who live with the children (presumably their mothers or caretakers) see a large increase in food insecurity and decrease their caloric intake by nearly one-half. This suggests that mothers are reducing their own consumption to protect their children from food insecurity, the authors conclude.

Chart of the Week: Mortgage rates rising sharply

Mortgage rates rising

 

Quote of the week:

“Consumer and business sentiment are quite negative. In the most recent Michigan Survey, consumer sentiment fell to its lowest level on record. In addition, the percentage of small business owners who expect better conditions over the next six months dropped to the lowest level in that survey’s history in May. Both surveys show inflation driving this pessimism. Typically, sentiment this low is associated with a weakening in consumer spending and business investment,” says Thomas Barkin, President of the Richmond Fed.

“At the same time, fiscal support from the pandemic is waning, and… inflation is moving the Fed to increase rates. Higher rates tend to slow the economy by increasing borrowing costs and disincentivizing spending and investment. Historically, eight of the last 11 Fed tightening cycles have been followed by some sort of a recession. That change in policy may well be making markets skittish. That’s understandable: The Fed hasn’t moved this quickly in over 20 years. And forecasters are predicting that our current rate increase cycle will go higher than its predecessor’s relatively low 2.4 percent 2019 peak. Now, the stock market is not the economy. But if markets were to crater, that could slow the economy by leading individuals and firms to pull back their spending and investment.”

 

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