An earlier version of this blog included an incorrect caption for the Chart of the Week: "US manufacturing activity and input costs continue to decline". This has since been corrected. We apologize for the error.
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In the 1980s, college graduates’ earnings began far outpacing those of non-college graduates. Many economists point to supply and demand factors as an explanation for this rising skill premium, while others point to the role of labor market institutions. Jonathan Vogel of UCLA makes the case that supply, demand, and institutional factors are at play. Using national data on wages and educational attainment, he finds that half of the increase in the skill premium during the 1980s came from a shortage of college grads, and a third of the increase was due to declining real minimum wages. Vogel also analyzes state-level data from the last 40 years, finding that the skill premium rose fastest in states where the minimum wage was low and slowest in states with high minimum wages. These findings suggest that policymakers looking to reduce income inequality will need a two-pronged solution that increases both the number of college grads and the minimum wage.
Previous studies have estimated the U.S. housing shortage by measuring the stock of housing relative to historical trends. Kevin Corinth from the Joint Economic Committee and Hugo Dante from George Mason University argue that these studies severely underestimate the true housing shortage since historical trends don’t accurately measure how many homes the market truly needs. The true housing shortage, the authors say, is the difference between how many homes would have been produced in the absence of supply constraining regulations and how many homes are currently available. Using the assumption that in fully unconstrained markets, land values are expected to equal about 20% of house prices, the authors estimate that the true housing shortage in 2021 was 20.1 million homes, or 14.1% of the national housing stock. This is 4 to 5 times the shortage estimated in previous studies and 13 times the estimate cited by the White House when announcing its 2022 Housing Supply Action Plan.
Using a randomized control trial on 1,612 employees at a multinational technology firm, Nicholas Bloom and Ruobing Han of Stanford and James Liang of Peking University find that work from home increases employee satisfaction and alters their work structure without impacting performance. The authors find that employees who were randomly assigned the option to work from home twice a week had a 35% lower attrition rate than those required to work in person full time. In addition, workers with the hybrid-work option worked fewer hours on days from home but worked longer in the office and over the weekend. While hybrid employees reported higher levels of productivity on self-assessments, the authors find no significant difference in performance reports or promotions between the two groups. The results imply that work-from-home policies yield benefits to employees as well as the firms they work for, the authors conclude.
Chart courtesy of the Wall Street Journal
“[T]ypically, recessions demonstrate why job losses, high unemployment, those are terrible for American families. And we’re not seeing anything like that. The labor market, so far, is very strong. We are seeing some sectors, like the tech sector, start to shed workers or start to cool down in hiring. But, fundamentally, the labor market appears to be very strong. While GDP, the amount the economy is producing, appears to be shrinking. So we’re getting mixed signals out of the economy. From my perspective, in terms of getting inflation in check, whether we are technically in a recession or not doesn’t change my analysis. I’m focused on the inflation data. I’m focused on the wage data. And, so far, inflation continues to surprise us to the upside. Wages continue to grow. So far the labor market is very, very strong,” says Neel Kashkari, President of the Federal Reserve Bank of Minneapolis.
“We don’t want to see the economy overheating. We would love it if we can transition to a sustainable economy without tipping the economy into recession. There’s not a great record of doing that. Typically when the economy slows down, it slows down by quite a bit, especially if it’s the central bank that is inducing the slowdown. So, we’re going to do everything we can to try to avoid a recession, but we are committed to bringing inflation down and we are going to do what we need to do.”
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