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Daily Archives: April 21, 2014

Returning to Full Employment: What Do the Indicators Tell Us?

CRS – Returning to Full Employment: What Do the Indicators Tell Us? Marc Labonte, Specialist in Macroeconomic Policy. April 15, 2014.

“Until recently, the economy and labor market were experiencing an unusually slow recovery from the longest and deepest recession since the Great Depression compared to other expansions since World War II. The rapid decline in the unemployment rate from 7.9% in January to 6.7% in December 2013 (where it remained in the first quarter of 2014) would seem to indicate that the labor market is returning to normal. The current unemployment rate is only 0.5 to 1.5 percentage points higher than the consensus range of full employment. Unusually, the unemployment rate may not currently be a good proxy for the overall state of the labor market or economy. Some of the decline in the unemployment rate in 2013 is attributable to a recovery in employment, but some is attributable to workers dropping out of the labor force. The labor force participation rate has continued to fall during the recovery and is at its lowest level since the 1970s. In fact, it has fallen more in the past five years than at any time since data have been collected. Studies have identified multiple reasons for the decline. Some workers have left the labor force because they have become discouraged and given up on seeking employment. Others have left for reasons stemming from long-term trends that are unrelated to the recession, such as age or enrollment in school or training. This trend could reverse—for example, more workers returned to the labor force than found jobs in the first quarter of 2014, which prevented the unemployment rate from falling. Other evidence also points to more slack in the economy than the headline unemployment rate suggests. Economic output and employment have grown since mid-2009 and 2010, respectively, but at relatively sluggish rates. The long-term unemployment rate and youth unemployment rates have fallen only modestly since the recession ended and are still at historically high levels. Inflation has remained slightly lower than the Federal Reserve’s (Fed’s) goal of 2%. These other economic indicators could be sending a misleading signal about significant slack in the economy, however, if the economy’s potential capacity has been eroded by structural changes or by the length and depth of the Great Recession. Cyclical deterioration in the U.S. labor market is usually considered temporary—recessions are thought to have no lasting effect on overall employment and unemployment rates. This recession could cause a departure from conventional wisdom if labor market problems that started as cyclical persisted so long that they became structural. For example, long-term unemployment could have caused workers’ skills to erode, which would then prevent them from finding a job when the economy recovered. Congress conducts fiscal policy and oversees the Fed’s implementation of monetary policy, the two tools of macroeconomic stabilization. Policy makers are grappling with the transition from the highly expansionary monetary and fiscal policy put in place during the Great Recession. Many economists advocate reducing the budget deficit only when the economy is at or near full employment. Likewise, the Fed has stated that it would begin to raise interest rates once the economy is near full employment. If the economy remains far from full employment, then declining unemployment would not yet call for a tightening of monetary and fiscal policy. Alternatively, if lower unemployment is being driven by a cyclical upswing and the economy is now closer to full employment than historical experience would predict, policy would likely need to be tightened sooner in order to avoid rising inflation. It would also suggest that structural policies (e.g., those that increase the incentives to hire, seek work, delay retirement, or train) would be more effective at improving labor market conditions than counter-cyclical monetary and fiscal policies.”


“The Gulf Long-term Follow-up Study (GuLF STUDY)  is the largest study ever conducted on the potential health effects associated with an oil spill, with nearly 33,000 participants. The GuLF STUDY is focused on prospectively determining both physical and mental health effects related to the 2010 Deepwater Horizon oil spill and is collecting information that can… Continue Reading

Interpreting Deviations from Okun’s Law

Interpreting Deviations from Okun’s Law. Mary C. Daly, John Fernald, Òscar Jordà, and Fernanda Nechio “Arthur Okun (1962) described the consistent relationship between changes in output and changes in unemployment that has become a standard tool for monetary policymakers and forecasters. The statistical relationship he uncovered has come to be known as Okun’s law. A simple… Continue Reading

An Evaluation of the Inflationary Pressure Associated with Short- and Long-term Unemployment

An Evaluation of the Inflationary Pressure Associated with Short- and Long-term Unemployment. Michael T. Kiley. April 16, 2014. “In the years following 2009, long-term unemployment has been very elevated while inflation has fallen only moderately, raising the question of whether the long-term unemployed exert less downward pressure on prices than the short-term unemployed, perhaps because such potential workers are… Continue Reading

Report of the President’s Working Group on Financial Markets

Report of the President’s Working (PWG) Group On Financial Markets. The Long-Term Availability and Affordability ofInsurance for Terrorism Risk. Completed pursuant to 15 U.S.C. 6701 note § 108(e) April 2014. “Consistent with the 2006 and 2010 PWG reports, this Report draws its data and conclusions from commentssubmitted in response to the PWG Notice, particularly data provided by two… Continue Reading

NOAA releases Arctic Action Plan

“Earlier this year, President Obama released a plan for moving forward on his national strategy to advance U.S. security and stewardship interests in the Arctic. Today, in keeping with the goals and tenets of his strategy, NOAA unveils its Arctic Action Plan—a document that provides NOAA scientists, stakeholders and partners a roadmap to make shared progress in monitoring, understanding, and… Continue Reading

The Flow of Technology Talent into Government and Civil Society – A Report

A Future of Failure? The Flow of Technology Talent into  Government and Civil Society – A Report, Freedman Consulting, LLC.  “Among the key findings of this report: The Current Pipeline Is Insufficient: the vast majority of interviewees indicated  that there is a severe paucity of individuals with technical skills in computer science, data science, and the Internet or… Continue Reading

Wealth and Inheritance in the Long Run

Wealth and Inheritance in the Long Run. Thomas Piketty, Paris School of Economics; Gabriel Zucman, London School of Economics and UC Berkeley. April 6, 2014. “This article o ers an overview of the empirical and theoretical research on the long run evolution of wealth and inheritance. Wealth-income ratios, inherited wealth, and wealth inequalities were high in the 18th-19th centuries up until World War… Continue Reading

Book Review – The Limits of Social Engineering

Tapping into big data, researchers and planners are building mathematical models of personal and civic behavior. But the models may hide rather than reveal the deepest sources of social ills, by Nicholas Carr on April 16, 2014, MIT Technology Review. “…Even if we assume that the privacy issues can be resolved, the idea of what Pentland  [Alex… Continue Reading

New GAO Reports – HHS and Enroll America, IRS Budget Cuts, Private Pensions

DEPARTMENT OF HEALTH AND HUMAN SERVICES: Solicitations of Support for Enroll America, GAO-14-305R: Published: Mar 21, 2014. Publicly Released: Apr 21, 2014. INTERNAL REVENUE SERVICE: Absorbing Budget Cuts Has Resulted in Significant Staffing Declines and Uneven Performance, GAO-14-534R: Published: Apr 21, 2014. Publicly Released: Apr 21, 2014. PRIVATE PENSIONS: Pension Tax Incentives Update, GAO-14-334R: Published: Mar 20, 2014. Publicly Released: Apr 21,… Continue Reading