Derek Tang, Macroadvisor: Are We in Another Jobless Recovery? Are we in a jobless recovery? Yes, if one doesn’t quibble too much with semantics. While it is not the case that there have been no jobs gained in the last few months, the pace of job creation has been frustratingly meager given the severity of the recession and the time that has elapsed since the formal end of the recession, in June 2009. Private nonfarm payrolls rose in each of the first nine months of the year, by a total of some 860 thousand, but this is only a small fraction of the 8½ million private jobs that were lost during 2008 and 2009. We expect that the sluggish pace of recovery in employment will continue for some time. We anticipate that private payrolls will expand by just 90 thousand over the final three months of 2010, followed by an increase of about 2.7 million during 2011. In other words, according to the forecast, even 2½ years after the end of the recession, less than half of the jobs lost during the past two years will have been restored. Indeed, in our forecast, the previous peak in private employment, which occurred in December 2007, will not be reached until 2013, almost four years after the end of the recession.
Tamim Bayoumi, Trung Bui, IMF: Deconstructing the International Business Cycle: Why does a U.S. sneeze give the rest of the world a cold The 2008 crisis underscored the interconnectedness of the international business cycle, with
Christopher J. Erceg, Jesper Lindé, Fed: Is There a Fiscal Free Lunch in a Liquidity Trap. This paper uses a DSGE model to examine the effects of an expansion in government spending in a liquidity trap. If the liquidity trap is very prolonged, the spending multiplier can be much larger than in normal circumstances, and the budgetary costs minimal. But given this "fiscal free lunch," it is unclear why policymakers would want to limit the size of fiscal expansion. Our paper addresses this question in a model environment in which the duration of the liquidity trap is determined endogenously, and depends on the size of the fiscal stimulus. We show that even if the multiplier is high for small increases in government spending, it may decrease substantially at higher spending levels; thus, it is crucial to distinguish between the marginal and average responses of output and government debt.
Jens Christensen, San Francisco Fed: TIPS and the Risk of Deflation. The low level of inflation and the sluggish pace of economic recovery have raised concerns about sustained deflation—an inflation rate below zero with a general fall in prices. However, the relative prices of inflation-indexed and non-indexed Treasury bonds, which historically have proven to be good measures of inflation expectations, suggest that financial market participants consider the probability of deflation to be low.
J. Bradford DeLong, Project Syndicate: The Humiliation of Britain. What is humiliating is to have a government that cuts a half-million public-sector jobs and causes the loss of another half-million jobs in the private sector. In an economy of 30 million jobs, that translates into an increase in the unemployment rate of 3.5 percentage points – at a time when no sources of expanding private-sector demand exist to pick up the slack.
Sergey Lychagin et al, VoxEU: You can raise productivity through R&D, but geography matters a lot. Why do local policymakers fight so hard to attract research and development labs to their area? This column provides a possible explanation. Using patent data, it finds a strong link between R&D and growth caused by knowledge spillovers between firms.
Christopher Cotton, Frank McIntyre, Joseph Price, VoxEU: Can gender differences in competition explain the achievement gap? Around the world, the pay and achievement gap between men and women remains significant, as shown by last week’s Global Gender Gap Report. This column explores whether this gap can be explained by attitudes towards competition. Using experimental evidence from math quiz competitions in primary schools, it finds that while males respond better to competition initially, this advantage is short-lived, as females are just as responsive over time.
Melissa Schettini Kearney et al, NBER: Making Savers Winners: An Overview of Prize-Linked Savings Products. For over three centuries and throughout the globe, people have enthusiastically bought savings products that incorporate lottery elements. In lieu of paying traditional interest to all investors proportional to their balances, these Prize Linked Savings (PLS) accounts distribute periodic sizeable payments to some investors using a lottery-like drawing where an investor’s chances of winning are proportional to one’s account balances. This paper describes these products, provides examples of their use, argues for their potential popularity in the United States —especially to low and moderate income non-savers—and discusses the laws and regulations in the United States that largely prohibit their issuance.
Daniel W. Sacks, Betsey Stevenson, Justin Wolfers, NBER: Subjective Well-Being, Income, Economic Development and Growth. We show that richer individuals in a given country are more satisfied with their lives than are poorer individuals, and establish that this relationship is similar in most countries around the world. Turning to the relationship between countries, we show that average life satisfaction is higher in countries with greater GDP per capita. The magnitude of the satisfaction-income gradient is roughly the same whether we compare individuals or countries, suggesting that absolute income plays an important role in influencing well- being. Finally, studying changes in satisfaction over time, we find that as countries experience economic growth, their citizens' life satisfaction typically grows, and that those countries experiencing more rapid economic growth also tend to experience more rapid growth in life satisfaction. These results together suggest that measured subjective well-being grows hand in hand with material living standards.
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