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In her speech “Labor Market Dynamics and Monetary Policy” at the Kansas City Fed’s recent Jackson Hole symposium, Fed chairwoman Janet Yellen discussed economic puzzles challenging policymakers, including topics we’ve addressed on Liberty Street Economics. A central and much-debated question is: how tight is the current labor market? The unemployment rate is one key measure. But in February, a team of our bloggers proposed a finer tool to measure slack—one that distinguishes the effects of long- and short-duration unemployment on wage inflation.
This post is the first in a series of four Liberty Street Economics posts examining the value of a college degree.
Not so long ago, people rarely questioned the value of a college degree. A bachelor’s degree was seen as a surefire ticket to a career-oriented, good-paying job. Today, however, many people are uncertain whether going to college is such a wise decision. It’s easy to see why. Tuition costs have been rising considerably faster than inflation, student debt is mounting, wages for college graduates have been falling, and recent college graduates have been struggling to find good jobs. These trends might lead one to believe that college is no longer a good investment. But when you dig into the data, is this really true? This week, we examine the value of a college degree in a four-part blog series. In this first post, we do the basic math and show that despite what appears to be a set of alarming trends, the value of a bachelor’s degree for the average graduate has held near its all-time high of about $300,000 for more than a decade.
We read with interest a new Brookings Institution report, Is a Student Loan Crisis on the Horizon?, assessing the weight of the student debt burden. It was also pleasing to see the New York Times, several of our Twitter followers, and others citing work on this blog in counterpoint.
Basit Zafar, Zachary Bleemer, Meta Brown, and Wilbert van der Klaauw
U.S. student debt has more than tripled since 2004, and at over $1 trillion is now substantially greater than both credit card and auto debt balances. There are substantial potential benefits to be gained from taking out a student loan to fund a college education, including higher earnings and lower unemployment rates for college grads. However, there are significant costs to having student debt: The loans frequently carry relatively high interest rates, delinquency is common and costly (involving potential late fees and collection fees), and the federal government has the power to garnish the wages of individuals with delinquent federally guaranteed student loans (in fact, reported federal recovery rates on defaulted direct student loans exceed70 percent). The ability of U.S. households to make well-informed decisions regarding higher education and student loan take-up for themselves (or members of their households) depends on the extent to which they accurately perceive the costs and benefits of such choices. To what extent does the American public understand the implications of student loan indebtedness? To shed light on this question, we went out and surveyed U.S. households.
This morning, the New York Fed released a new set of charts measuring various dimensions of the labor market. These charts are mostly generated from data available through the Current Population Survey (CPS), the Current Employment Statistics (CES) program, and the Job Openings and Labor Turnover Survey (JOLTS). This new monthly release will provide timely updates to help economists and the public understand national labor market conditions. The charts are split into eight distinct categories: unemployment, employment, hours, labor demand, job availability, job loss rate, wages, and mismatch.
Victoria Gregory, Christina Patterson, Ayşegül Şahin, and Giorgio Topa
Fluctuations in unemployment are mostly driven by fluctuations in the job-finding prospects of unemployed workers—except at the onset of recessions, according to various research papers (see, for example, Shimer [2005, 2012] and Elsby, Hobijn, and Sahin ). With job losses back to their pre-recession levels, the job-finding rate is arguably one of the most important indicators to watch. This rate—defined as the fraction of unemployed workers in a given month who find jobs in the consecutive month—provides a good measure of how easy it is to find jobs in the economy. The chart below presents the job-finding rate starting from 1990. Clearly, the job-finding rate is still substantially below its pre-recession levels, suggesting that it is still difficult for the unemployed to find work. In this post, we explore the underlying reasons behind the low job-finding rate.
Puerto Rico’s economy has been in a protracted economic slump since 2006. If there were officially designated recessions for the Commonwealth, it probably would have been in one for the better part of these past seven years. Real GNP had fallen 12 percent before finally leveling off in 2012. But the economic measure most widely relied upon to gauge the island’s economy—because the data are monthly and timely—is payroll employment. Between early 2006 and the first half of 2011, this measure fell by a similar amount (13 percent); it then started to recover gradually in late 2011 and into the first part of 2012. But late in the year it began to nosedive again, reaching new lows in mid-2013—Or did it? More complete tabulations of employment presage upward revisions to Puerto Rico’s payroll job count, suggesting that current employment (and thus economic) conditions are not as gloomy as they appear, based on currently reported data.
Euro area growth has been stalled since 2010, mired in the sovereign debt crisis, while the United States has managed a slow but steady recovery following the Great Recession. Euro area and U.S. labor markets reflect these differing growth paths. While unemployment rates in the euro area and the United States were both around 10 percent in 2010, the unemployment rate in the euro area has since increased to 12.0 percent, and the U.S. rate has fallen to 6.7 percent. However, the outperformance of the U.S. labor market as measured by unemployment rates is overstated. Employment relative to the population has declined in the euro area, but the divergence of this measure from that of the United States is more modest than suggested by unemployment rates. The difference is that, unlike in the United States, the share of women in the euro area labor force is increasing, and that development accounts for roughly half of the current gap between unemployment rates in the two economies.
The unemployment rate is a popular measure of the condition of the labor market. With the Great Recession, the unemployment rate increased from a low of 4.4 percent in March 2007 to a peak of 10.0 percent in October 2009. As the economy recovered and growth resumed, the unemployment rate has fallen to 6.7 percent. What other measures are useful to supplement our understanding of the degree of the labor market recovery?
Marco Cipriani, Paola Giuliano, and Olivier Jeanne
Economic research shows that differences in cultural traits and values—for example, trust, or the propensity to cooperate and not free-ride on others—are important determinants of economic
outcomes, such as growth, economic and financial development, and international trade. It’s much less clear, however, where these
differences in economic-relevant values come from. While economists generally
assume that they’re transmitted from parents to children, the empirical
evidence to this effect is almost nonexistent.
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