OCTOBER 30 2015

Angel Ubide, Peterson Institute for International Economics: The Fed's Confusion over Interest Rates. Ben Bernanke, in his recently published memoirs, says that monetary policy is 98 percent communication and 2 percent action. During his tenure as a central banker he scrupulously followed this principle. Unfortunately, in recent months the Fed has created tremendous confusion with its communication policy, losing much of the credibility it had gained. An accumulation of execution errors, not a change in strategy, is beginning to take its toll. Markets are paying increasingly less attention to Fed statements and warnings, and the gap between market pricing and the Fed's public guidance on interest rates is increasing. The more this disagreement continues, the harder it will be to solve it without pain.

Julie Hotchkiss, Atlanta Fed: Should We Be Concerned about Declines in Labor Force Growth? For the second month in a row, the October jobs report from the U.S. Bureau of Labor Statistics (BLS) has revealed a decline in the labor force. From August to September, the labor force lost a seasonally adjusted 350,000 participants. And the August number of participants was a seasonally adjusted 41,000 below July's level. Although two months don't necessarily make a trend, observers have noticed the declines in the labor force (here and here, for example), and they deserve some attention. Labor is an important component in the production process. Short of dramatic technological advancements, both the manufacturing and service sectors need a consistent source of labor to fuel output. Even though the economy appears to be on the right track with respect to job creation, ongoing declines in labor force growth could pose a challenge to economic growth. Additionally, as employers compete for fewer workers, we would expect wages to be bid up. Keep an eye on the Atlanta Fed's wage tracker to see how slowing labor force growth plays out in wages.

Robert Z. Lawrence, VOX: Explaining recent declines in labour’s share in US income. The US debate over income inequality in the 1980s and 1990s focused on the growing disparity between the earnings of the skilled, the unskilled and the super-rich. After the global crash, the decline in labour’s share of national income has been added to these concerns. This column presents an alternative explanation for this decline, arguing that limited substitution possibilities between capital and labour combined with the acceleration in the pace of labour-augmenting technical change raises the effective labour-capital ratio. The policy implications of this alternative explanation are profoundly different from those currently circulating.

Mona Larsen, Peder J. Pedersen, IZA: Labor Force Activity after 60: Recent Trends in the Scandinavian Countries with Germany as a Benchmark. In most OECD member countries labor force attachment has increased in recent years in the 60+ group. Focus in the paper is on the development in this area in Denmark, Norway and Sweden since the 1990s. The development in the same period in the German labor market is included as a frame of reference. Main emphasis is given to the development in two distinct age groups, i.e. people in the first half of the 60s of which many are eligible for early retirement programs and people older than 65 mostly eligible for social security retirement programs. For these two age groups the actual development in labor force participation is described based on register data and on labor force surveys along with indicators of cohort relevant changes in education and health. Focus in the paper includes also the gender aspect to accommodate stronger cohort effects for women than for men. The impact on labor force participation from individual education and from self-assessed health is analyzed based on available micro data. Policy reforms and changes in the retirement area have been enacted since the mid-1990s in the included countries and more sweeping reforms are enacted or under review for the years ahead. We include a brief survey of policy changes in the Scandinavian countries and Germany as other determinants of labor force participation in the 60 and older group.

OECD: Children are paying a high price for today’s growing inequality. The OECD’s latest How’s Life? shows the extent to which some children are getting a better start in life than others. Income poverty affects one child in seven in OECD countries, while 10% of children live in jobless households. Since the economic crisis, child poverty rates have risen in two thirds of OECD countries. In most OECD countries, the poverty rate for children is higher than for the population in general. Looking at child well-being for the first time, the report shows how children from more affluent backgrounds tend to have better health and a happier school life. Children from less well-off families find fewer of their classmates to be kind and helpful and are more likely to be bullied at school. Life satisfaction, reading and problem-solving skills, communication with parents and intentions to vote in national elections in later life are all lower among children from less affluent backgrounds. Growing inequality among parents ends up sapping opportunities available to their children.ooking at child well-being for the first time, the report shows how children from more affluent backgrounds tend to have better health and a happier school life. Children from less well-off families find fewer of their classmates to be kind and helpful and are more likely to be bullied at school. Life satisfaction, reading and problem-solving skills, communication with parents and intentions to vote in national elections in later life are all lower among children from less affluent backgrounds. Growing inequality among parents ends up sapping opportunities available to their children.

Alexander C. Kaufman, The Huffington Post: Stephen Hawking Says We Should Really Be Scared Of Capitalism, Not Robots. Machines won't bring about the economic robot apocalypse -- but greedy humans will, according to physicist Stephen Hawking. In a Reddit Ask Me Anything session on Thursday, the scientist predicted that economic inequality will skyrocket as more jobs become automated and the rich owners of machines refuse to share their fast-proliferating wealth. “If machines produce everything we need, the outcome will depend on how things are distributed. Everyone can enjoy a life of luxurious leisure if the machine-produced wealth is shared, or most people can end up miserably poor if the machine-owners successfully lobby against wealth redistribution. So far, the trend seems to be toward the second option, with technology driving ever-increasing inequality.”

William B. Peterman and Kamila Sommer, FED: A Historical Welfare Analysis of Social Security: Whom Did the Program Benefit? In a computational life cycle model that simulates the Great Depression and the enactment of Social Security, this paper quantifies the welfare effects of the program's enactment on the cohorts of agents who experienced it. In contrast to the standard steady state results, we find that the adoption of the original Social Security tended to improve these cohorts' welfare. In particular, we estimate that the original program benefited households alive at the time of the program's adoption with a likelihood of over 80 percent, and increased these agents' welfare by the equivalent of 5.9% of their expected future lifetime consumption. The welfare benefit was particularly large for poorer agents and agents who were near retirement age when the program was enacted. Through a series of counterfactual experiments we demonstrate that the difference between the steady state and transitional welfare effects is primarily driven by a slower adoption of payroll taxes and a quicker adoption of benefit payments during the program's phase-in. Overall, the opposite welfare effects experienced by agents in the steady state versus agents who experienced the program's adoption might offer one explanation for why a program that potentially reduces welfare in the steady state was originally adopted.

Michael Spence, James Manyyika, Project syndicate: Job-Saving Technologies. This is an age of anxiety about the job-killing effects of automation, with dire headlines warning that the rise of robots will render entire occupational categories obsolete. But this fatalism assumes that we are powerless to harness what we create to improve our lives – and, indeed, our jobs. Evidence of technology’s potential to help resolve our job concerns can be found in online talent platforms. Digital platforms already have transformed many parts of the economy. The online marketplaces built by Amazon and Alibaba, for example, have reshaped the retail landscape, partly by changing the local nature of retail markets.

Jack Karsten and Darrell M. West, Brookings: Unlocking the potential of the Internet of Things. Many smartphone users already appreciate the power of having an Internet-connected device in their pockets. That same power will extend to many more people in developing countries as the price of basic smartphones continues to fall. The biggest impacts from IoT may come from outside the realm of consumer electronics, however. As the price of sensors also fall, larger numbers of industrial machines and equipment will be connected to a network to provide constant streams of performance data. The ability to track the data from sensors has applications in many different areas. For example, measuring energy consumption with sensors could lead to significant savings as inefficient devices are identified. Health care delivery would benefit from sensors that monitor patients remotely. The panelists also referenced the idea of a “smart city” where vehicles and traffic lights are wirelessly connected to improve traffic flows and reduce the number of accidents.

Kamilla Gumede, Michael Rosholm, IZA: Your Move: The Effect of Chess on Mathematics Test Scores. We analyze the effect of substituting a weekly mathematics lessons in primary school grades 1-3 with a lesson in mathematics based on chess instruction. We use data from the City of Aarhus in Denmark, combining test score data with a comprehensive data base from administrative register. We use a difference-in-differences approach to investigate treatment effects on the treated and tend to find positive effects. Looking at sub groups, we find significant positive effects for native Danish children, while we find no effects for children of immigrants.

Florence Jaumotte, Carolina Osorio Buitron, VOX: Union power and inequality. Inequality in advanced economies has risen considerably since the 1980s, largely driven by the increase of top earners’ income shares. This column revisits the drivers of inequality, emphasising the role played by changes in labour market institutions. It argues that the decline in union density has been strongly associated with the rise of top income inequality and discusses the multiple channels through which unionisation matters for income distribution.

Frank Jacobs, Big Think: What the 'Ideal' Man Looks Like, Country by Country. What makes these 29 pairs of eyes even more unsettling is the fact that these are not real people. Each face is a composite, assembled from the mugshots of between 10 to 24 male athletes from each of the 29 European countries represented here. This gallery of facial averages is like a collection of artist's sketches of usual suspects pinned to the bulletin board of a police station. Who are these imaginary men? What are their faces trying to tell us? As averages of random but comparable samples by country, these faces are uniquely "national." The French face is the Frenchest face possible, and the German face couldn't be any more German, et cetera. Does that mean these faces are merely average? Or are they in some way "ideal"? Or — and this is even more disconcerting — could it perhaps be that to be facially average is ideal?

Tom Simonite, MIT Technology Review: You’ve Been Misled About What Makes a Good Password. The latest password guessing software is smarter than just guessing at random. Instead it is trained using leaked lists of millions of passwords to make guesses that try the passwords—or patterns found in passwords—most commonly used first. Password-guessing software can be used to try to reveal improperly encrypted passwords leaked online, like the 130 million taken from Adobe in 2013, or to directly access password-secured software or devices that don’t limit guessing attempts. A study that tested state-of-the-art password-guessing techniques found that requiring numbers and uppercase characters in passwords doesn’t do much to make them stronger. Making a password longer or including symbols was much more effective.