T his spring, the U.S. Congress returned to a topic that has become a staple of political discussion in Washington: the role of energy in the economy and, in particular, the dependence of the U.S. economy on energy imports. Since 1973, when President Richard Nixon announced the goal of making the United States energy-independent by the end of that decade, the nation has steadily increased its energy imports. This trend is usually expressed in terms of petroleum imports. According to statistics from the U.S. Department of Energy, the United States imported about one-quarter of all the petroleum it used in the early 1970s. By 2000, that fraction had risen to nearly 57 percent. When all sources of energy are considered, not just those from petroleum products, import shares have not been as large. As measured by total British thermal units (BTUs) generated from all sources, the U.S. reliance on imported energy rose from about 10 percent of total energy used in the early 1970s to nearly 25 percent in 2000. Over the same period, however, the United States has become much more efficient in its use of energy resources, mitigating the overall dependence of the economy on foreign energy supplies. Economic theory suggests that when a factor of production such as energy is subject to supply uncertainties and price spikes—like we have seen since the 1970s—the users of that factor have incentives to economize by substituting other factors and switching toward production techniques that do not depend so heavily on that factor. As illustrated in the accompanying chart, the U.S. economy has, indeed, become much more efficient in its use of energy over past decades, particularly since the early 1970s. In terms of energy consumption per unit of real economic output, efficiency has nearly doubled. Between 1970 and 2000, the energy needed to produce one dollar of real gross domestic product (GDP) declined from nearly 19 thousand BTUs to 10.6 thousand BTUs. Were it not for this improvement in energy efficiency, the U.S. might very well be even more dependent on imported energy than it is today. The chart also shows that, as the U.S. economy has grown and diversified, domestic energy production has also declined relative to total output. With energy production and consumption both falling relative to GDP, the gap between the two—net energy imports relative to GDP— has changed little since the 1970s: In 1973, energy imports amounted to 3.0 thousand BTUs per dollar of real GDP produced. In 2000, that measure of energy dependence stood at 2.9 thousand BTUs. When measured relative to total economic activity, therefore, these statistics show that the economic significance of energy imports has not changed substantially over the past quarter-century. BTUs in GDP
{"title":"BTUs in GDP","authors":"Michael R. Pakko","doi":"10.20955/es.2002.12","DOIUrl":"https://doi.org/10.20955/es.2002.12","url":null,"abstract":"T his spring, the U.S. Congress returned to a topic that has become a staple of political discussion in Washington: the role of energy in the economy and, in particular, the dependence of the U.S. economy on energy imports. Since 1973, when President Richard Nixon announced the goal of making the United States energy-independent by the end of that decade, the nation has steadily increased its energy imports. This trend is usually expressed in terms of petroleum imports. According to statistics from the U.S. Department of Energy, the United States imported about one-quarter of all the petroleum it used in the early 1970s. By 2000, that fraction had risen to nearly 57 percent. When all sources of energy are considered, not just those from petroleum products, import shares have not been as large. As measured by total British thermal units (BTUs) generated from all sources, the U.S. reliance on imported energy rose from about 10 percent of total energy used in the early 1970s to nearly 25 percent in 2000. Over the same period, however, the United States has become much more efficient in its use of energy resources, mitigating the overall dependence of the economy on foreign energy supplies. Economic theory suggests that when a factor of production such as energy is subject to supply uncertainties and price spikes—like we have seen since the 1970s—the users of that factor have incentives to economize by substituting other factors and switching toward production techniques that do not depend so heavily on that factor. As illustrated in the accompanying chart, the U.S. economy has, indeed, become much more efficient in its use of energy over past decades, particularly since the early 1970s. In terms of energy consumption per unit of real economic output, efficiency has nearly doubled. Between 1970 and 2000, the energy needed to produce one dollar of real gross domestic product (GDP) declined from nearly 19 thousand BTUs to 10.6 thousand BTUs. Were it not for this improvement in energy efficiency, the U.S. might very well be even more dependent on imported energy than it is today. The chart also shows that, as the U.S. economy has grown and diversified, domestic energy production has also declined relative to total output. With energy production and consumption both falling relative to GDP, the gap between the two—net energy imports relative to GDP— has changed little since the 1970s: In 1973, energy imports amounted to 3.0 thousand BTUs per dollar of real GDP produced. In 2000, that measure of energy dependence stood at 2.9 thousand BTUs. When measured relative to total economic activity, therefore, these statistics show that the economic significance of energy imports has not changed substantially over the past quarter-century. BTUs in GDP","PeriodicalId":305484,"journal":{"name":"National Economic Trends","volume":"99 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1900-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124943482","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Views expressed do not necessarily reflect official positions of the Federal Reserve System. The Federal Open Market Committee (FOMC) has responsibility for the long-run inflation rate for the U.S. economy and therefore needs a reliable indicator of trend movements of inflation. Currently, the Committee focuses on the personal consumption expenditures (PCE) inflation rate—in particular, on the core rate. The core rate excludes food and energy, two components that, since 2000, together account for approximately 18 percent of the index, about 13 percent food and 5 percent energy. Policymakers generally consider the energy component, in particular, to be too volatile to inform their month-to-month deliberations. But is it a good idea to exclude prices that are, after all, faced by consumers, when trying to read movements in trend inflation? A trend inflation indicator that is often used is PCE inflation measured from one year earlier. The chart shows inflation rate data since 2000. Pictured are the inflation rates for the PCE, the core PCE, and the energy component of the PCE. The chart indicates that the energy component is quite volatile, as expected. If the core PCE concept is valid, the energy component should be sometimes above and sometimes below the PCE inflation rate, as it was in 2001 and 2002. In this situation, the core concept removes a volatile component and gives the Committee a better indicator of trend inflation movements. However, the data since 2003 show a persistent divergence in the overall and core PCE inflation rates, as the inflation in the energy component has remained high. For this time period, excluding energy prices simply amounts to putting zero weight on the prices that are increasing at the most rapid rate. Accordingly, the chart indicates that the core PCE inflation rate has averaged about 1.94 percent per year, while the PCE has averaged 2.56 percent during this period. One could interpret this as a sustained understatement of the true trend inflation rate, rendering the core measure a misleading trend inflation indicator for policymakers. The problem is this: Instead of simply being volatile, energy prices moved to a higher level and have remained at the higher level. That means that the relative price of energy has increased more or less continuously for the past several years. Given our relatively inelastic demand for energy, at least in the short run, all of us consumers were forced to spend more on energy and less on all other goods. From this source we expect downward pressure on the prices of all non-energy goods and services. Once the relative price change is complete, we would expect energy prices to be volatile around their new, higher level, but again grow at the same rate on average as the prices of all other goods. As the chart indicates, during the transition toward a higher relative price of energy there was a sustained gap between the overall and core PCE inflation rates. We conclude that excluding en
{"title":"Energy prices: In the mix or swept under the rug?","authors":"James Bullard, Geetanjali Pande","doi":"10.20955/es.2007.9","DOIUrl":"https://doi.org/10.20955/es.2007.9","url":null,"abstract":"Views expressed do not necessarily reflect official positions of the Federal Reserve System. The Federal Open Market Committee (FOMC) has responsibility for the long-run inflation rate for the U.S. economy and therefore needs a reliable indicator of trend movements of inflation. Currently, the Committee focuses on the personal consumption expenditures (PCE) inflation rate—in particular, on the core rate. The core rate excludes food and energy, two components that, since 2000, together account for approximately 18 percent of the index, about 13 percent food and 5 percent energy. Policymakers generally consider the energy component, in particular, to be too volatile to inform their month-to-month deliberations. But is it a good idea to exclude prices that are, after all, faced by consumers, when trying to read movements in trend inflation? A trend inflation indicator that is often used is PCE inflation measured from one year earlier. The chart shows inflation rate data since 2000. Pictured are the inflation rates for the PCE, the core PCE, and the energy component of the PCE. The chart indicates that the energy component is quite volatile, as expected. If the core PCE concept is valid, the energy component should be sometimes above and sometimes below the PCE inflation rate, as it was in 2001 and 2002. In this situation, the core concept removes a volatile component and gives the Committee a better indicator of trend inflation movements. However, the data since 2003 show a persistent divergence in the overall and core PCE inflation rates, as the inflation in the energy component has remained high. For this time period, excluding energy prices simply amounts to putting zero weight on the prices that are increasing at the most rapid rate. Accordingly, the chart indicates that the core PCE inflation rate has averaged about 1.94 percent per year, while the PCE has averaged 2.56 percent during this period. One could interpret this as a sustained understatement of the true trend inflation rate, rendering the core measure a misleading trend inflation indicator for policymakers. The problem is this: Instead of simply being volatile, energy prices moved to a higher level and have remained at the higher level. That means that the relative price of energy has increased more or less continuously for the past several years. Given our relatively inelastic demand for energy, at least in the short run, all of us consumers were forced to spend more on energy and less on all other goods. From this source we expect downward pressure on the prices of all non-energy goods and services. Once the relative price change is complete, we would expect energy prices to be volatile around their new, higher level, but again grow at the same rate on average as the prices of all other goods. As the chart indicates, during the transition toward a higher relative price of energy there was a sustained gap between the overall and core PCE inflation rates. We conclude that excluding en","PeriodicalId":305484,"journal":{"name":"National Economic Trends","volume":"22 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1900-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129293688","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
I n the last 20 years, one notable trend in pension structure is that defined benefit (DB) pensions (i.e., plans that offer a predetermined payoff after a certain number of years of employment) have become less common while defined contribution (DC) plans (e.g., 401(k) plans) have become much more common.1 Economic theory suggests that one reason companies offer DB pensions is to induce workers to retire at a specific age. Does the rise of the 401(k) plan change the retirement incentives of workers? A standard DB plan is set up to spike in value at a predetermined age. A worker with a DB plan, therefore, has the incentive to stay at his or her job at least until the value of the pension is at its highest. For example, the payoff from a DB pension may leap from 20 percent to 40 percent of pre-retirement income when the worker turns 60. Continuing to work past age 60 leads to little or no additional increases in future benefits, thus giving the worker the incentive to retire at age 60. A DC plan differs from a DB plan in two important ways: the annuity value of a DC plan does not hit a peak at any certain age and a DC plan is portable between jobs. A worker with a DC plan, then, can change jobs at any age without jeopardizing retirement income. With DC plans, workers retire when the combination of retirement annuity income is sufficiently high and work satisfaction is sufficiently low. The portability of DC plans across employers and the absence of an upper bound on their annuity value should imply later retirement dates, on aver age. But do employees with 401(k)’s really work longer? Using data from the Health and Retirement Study, Leora Friedberg and Tony Webb (2000) estimate the likelihood, from one year to the next, that a full-time employee will voluntarily leave his or her job and fully retire.2 The accompanying Figure shows predicted labor participation of workers with a DB plan. More than 80 percent would retire by age 65. If those same workers had a DC pension, only about 60 percent would retire by age 65. Controlling for earnings, wealth, and Social Security, Friedberg and Webb find that workers with DC pensions are less likely to retire in any given year than workers with DB plans. Overall, they estimate that a worker with a DB plan retires 23 months earlier on average, other things equal. They also predict that the change in pension structure to date will raise the average retirement age of pensioned workers between three and eight months. Changes in the workplace have afforded workers more flexibility and more mobility. Pension coverage has followed this trend with portable 401(k) plans replacing defined benefit pensions, thereby allowing individuals to choose their own retirement age based on their personal preferences concerning work satisfaction and desired retirement income.
{"title":"Putting off retirement: the rise of the 401(k)","authors":"Abbigail J. Chiodo, Michael T. Owyang","doi":"10.20955/ES.2002.7","DOIUrl":"https://doi.org/10.20955/ES.2002.7","url":null,"abstract":"I n the last 20 years, one notable trend in pension structure is that defined benefit (DB) pensions (i.e., plans that offer a predetermined payoff after a certain number of years of employment) have become less common while defined contribution (DC) plans (e.g., 401(k) plans) have become much more common.1 Economic theory suggests that one reason companies offer DB pensions is to induce workers to retire at a specific age. Does the rise of the 401(k) plan change the retirement incentives of workers? A standard DB plan is set up to spike in value at a predetermined age. A worker with a DB plan, therefore, has the incentive to stay at his or her job at least until the value of the pension is at its highest. For example, the payoff from a DB pension may leap from 20 percent to 40 percent of pre-retirement income when the worker turns 60. Continuing to work past age 60 leads to little or no additional increases in future benefits, thus giving the worker the incentive to retire at age 60. A DC plan differs from a DB plan in two important ways: the annuity value of a DC plan does not hit a peak at any certain age and a DC plan is portable between jobs. A worker with a DC plan, then, can change jobs at any age without jeopardizing retirement income. With DC plans, workers retire when the combination of retirement annuity income is sufficiently high and work satisfaction is sufficiently low. The portability of DC plans across employers and the absence of an upper bound on their annuity value should imply later retirement dates, on aver age. But do employees with 401(k)’s really work longer? Using data from the Health and Retirement Study, Leora Friedberg and Tony Webb (2000) estimate the likelihood, from one year to the next, that a full-time employee will voluntarily leave his or her job and fully retire.2 The accompanying Figure shows predicted labor participation of workers with a DB plan. More than 80 percent would retire by age 65. If those same workers had a DC pension, only about 60 percent would retire by age 65. Controlling for earnings, wealth, and Social Security, Friedberg and Webb find that workers with DC pensions are less likely to retire in any given year than workers with DB plans. Overall, they estimate that a worker with a DB plan retires 23 months earlier on average, other things equal. They also predict that the change in pension structure to date will raise the average retirement age of pensioned workers between three and eight months. Changes in the workplace have afforded workers more flexibility and more mobility. Pension coverage has followed this trend with portable 401(k) plans replacing defined benefit pensions, thereby allowing individuals to choose their own retirement age based on their personal preferences concerning work satisfaction and desired retirement income.","PeriodicalId":305484,"journal":{"name":"National Economic Trends","volume":"2002 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1900-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130585781","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
U .S. multinational corporations have expanded their overseas operations substantially during the past 15 years. In 2002 (the latest year for which data are available) the foreign affiliates in which U.S. non bank corporations held majority ownership employed 8.2 million workers, a 77 percent increase since 1987. What explains this increase? One view is that corporations are increasingly shifting production to low-wage countries. U.S. corporations have increased their presence dramatically in some low-wage countries between 1987 and 2001 (the latest year for which data on a country basis are available). Employment by U.S. affiliates in Mexico tripled during this 14-year period, from 264,000 workers to 802,000. U.S. firms employ more workers in Mexico than in any foreign country, other than the United Kingdom and Canada. Employment by U.S. affiliates in China also has expanded rapidly. In 1987, employment in China by U.S. affiliates was negligible. In 2001 it ranked as one of the top ten countries for U.S. affiliates, with 273,000 workers employed by U.S. firms. Nevertheless, the data suggest that low wages are not the driving force behind much international investment. Most workers employed by foreign affiliates of U.S. corporations are located in other high-wage countries, even though the share of overseas employment by U.S. corporations in highwage countries declined between 1987 and 2001. In 1987, 68.3 percent of workers employed by foreign affiliates of U.S. corporations were located in high-wage countries; in 2001, this share fell to 61.4 percent.1 Although much attention has focused on the increase in foreign employment by U.S. firms, there has been a similar increase in the number of workers in the United States employed by foreign-owned corporations. The U.S.-based affiliates of foreign firms employed 5.4 million workers in the United States in 2002, more than double the number of workers in 1987. Foreign firms employ workers in all 50 states, accounting for 5 percent of U.S. private industry jobs. The decision of foreign corporations to establish or expand operations in the United States is clearly not driven by low wages. Indeed, if wages were the key factor in a firm’s decision to invest abroad then one would expect that most firms would locate in the lowest-wage countries, yet these countries see little foreign investment. In fact, the 49 countries designated by the United Nations as the least developed (with an annual per capita GDP under $900) account for less than 1 percent of the foreign employment of U.S. foreign corporations. One factor overlooked by the emphasis on wages is productivity. The labor cost of production depends not solely on the hourly wage a worker earns but also on how much the worker produces each hour. The productivity of workers in low-wage countries is typically lower than in high-wage countries. Other factors that are important determinants of foreign investment are the political stability of a country, the
{"title":"U.S. production abroad","authors":"P. Pollard","doi":"10.20955/ES.2004.14","DOIUrl":"https://doi.org/10.20955/ES.2004.14","url":null,"abstract":"U .S. multinational corporations have expanded their overseas operations substantially during the past 15 years. In 2002 (the latest year for which data are available) the foreign affiliates in which U.S. non bank corporations held majority ownership employed 8.2 million workers, a 77 percent increase since 1987. What explains this increase? One view is that corporations are increasingly shifting production to low-wage countries. U.S. corporations have increased their presence dramatically in some low-wage countries between 1987 and 2001 (the latest year for which data on a country basis are available). Employment by U.S. affiliates in Mexico tripled during this 14-year period, from 264,000 workers to 802,000. U.S. firms employ more workers in Mexico than in any foreign country, other than the United Kingdom and Canada. Employment by U.S. affiliates in China also has expanded rapidly. In 1987, employment in China by U.S. affiliates was negligible. In 2001 it ranked as one of the top ten countries for U.S. affiliates, with 273,000 workers employed by U.S. firms. Nevertheless, the data suggest that low wages are not the driving force behind much international investment. Most workers employed by foreign affiliates of U.S. corporations are located in other high-wage countries, even though the share of overseas employment by U.S. corporations in highwage countries declined between 1987 and 2001. In 1987, 68.3 percent of workers employed by foreign affiliates of U.S. corporations were located in high-wage countries; in 2001, this share fell to 61.4 percent.1 Although much attention has focused on the increase in foreign employment by U.S. firms, there has been a similar increase in the number of workers in the United States employed by foreign-owned corporations. The U.S.-based affiliates of foreign firms employed 5.4 million workers in the United States in 2002, more than double the number of workers in 1987. Foreign firms employ workers in all 50 states, accounting for 5 percent of U.S. private industry jobs. The decision of foreign corporations to establish or expand operations in the United States is clearly not driven by low wages. Indeed, if wages were the key factor in a firm’s decision to invest abroad then one would expect that most firms would locate in the lowest-wage countries, yet these countries see little foreign investment. In fact, the 49 countries designated by the United Nations as the least developed (with an annual per capita GDP under $900) account for less than 1 percent of the foreign employment of U.S. foreign corporations. One factor overlooked by the emphasis on wages is productivity. The labor cost of production depends not solely on the hourly wage a worker earns but also on how much the worker produces each hour. The productivity of workers in low-wage countries is typically lower than in high-wage countries. Other factors that are important determinants of foreign investment are the political stability of a country, the ","PeriodicalId":305484,"journal":{"name":"National Economic Trends","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1900-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121402618","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Social Security is a publicly run, mandatory retirement program. A number of analysts have suggested that the program be privatized. I discuss here the difference between the current Social Security program and an effectively equivalent private program with respect to wealth accumulation and saving at the individual and national levels. Under current law, Social Security requires each covered worker to pay into the program 12.4 percent of their taxable income (6.2 percent each from employee and employer). In return, those covered by Social Security receive payments that are determined by several factors, including age at retirement and the amount of payroll tax contributions made while working. In an essentially equivalent private program, the government could require each covered worker (and/or the employer) to pay into a private investment account 12.4 percent of their taxable income and prevent workers from accessing these accounts until they retired. In the private program, however, workers would own their accumulated contributions and earnings. That is, workers would accumulate wealth. Individuals would thereby have considerable flexibility. They could be given some discretion on how the funds are invested. Moreover, unlike the one-size-fits-all approach of Social Security, individuals could be given considerable discretion as to how the funds would be disbursed upon retirement. Those who were interested in providing their children with opportunities they never had might decide to work longer and pass all or most of their wealth to their heirs. Alternatively, individuals with relatively short life expectancies might opt to retire at the earliest possible date and/or disburse funds more quickly. In the event of an untimely death, the wealth accumulated in their account could be passed to their heirs or given to philanthropic causes. This flexibility could be particularly important to lowand moderateincome earners who may find it difficult to save beyond what they are required to contribute to Social Security. Private accounts would give these earners a greater opportunity to accumulate wealth that they could use at their discretion, which would provide them opportunities not available under the obligatory Social Security annuity. Economists have long known that current consumption and investment—at both the individual and national levels—do not depend so much on current income as on permanent income, which is to say, wealth. It is difficult to estimate how much private wealth accumulation would have differed had Social Security been administered privately rather than publicly. How ever, the Social Security trust fund balance—the accumulated Social Security tax receipts less Social Security payments plus earnings—at the end of 2004 was $1.68 trillion, about two-fifths as large as the federal debt held by the public. Whereas private savings are channeled through financial markets and ultimately lent to individuals, businesses, and governments—s
{"title":"Social security, saving, and wealth accumulation","authors":"D. Thornton","doi":"10.20955/ES.2005.12","DOIUrl":"https://doi.org/10.20955/ES.2005.12","url":null,"abstract":"Social Security is a publicly run, mandatory retirement program. A number of analysts have suggested that the program be privatized. I discuss here the difference between the current Social Security program and an effectively equivalent private program with respect to wealth accumulation and saving at the individual and national levels. Under current law, Social Security requires each covered worker to pay into the program 12.4 percent of their taxable income (6.2 percent each from employee and employer). In return, those covered by Social Security receive payments that are determined by several factors, including age at retirement and the amount of payroll tax contributions made while working. In an essentially equivalent private program, the government could require each covered worker (and/or the employer) to pay into a private investment account 12.4 percent of their taxable income and prevent workers from accessing these accounts until they retired. In the private program, however, workers would own their accumulated contributions and earnings. That is, workers would accumulate wealth. Individuals would thereby have considerable flexibility. They could be given some discretion on how the funds are invested. Moreover, unlike the one-size-fits-all approach of Social Security, individuals could be given considerable discretion as to how the funds would be disbursed upon retirement. Those who were interested in providing their children with opportunities they never had might decide to work longer and pass all or most of their wealth to their heirs. Alternatively, individuals with relatively short life expectancies might opt to retire at the earliest possible date and/or disburse funds more quickly. In the event of an untimely death, the wealth accumulated in their account could be passed to their heirs or given to philanthropic causes. This flexibility could be particularly important to lowand moderateincome earners who may find it difficult to save beyond what they are required to contribute to Social Security. Private accounts would give these earners a greater opportunity to accumulate wealth that they could use at their discretion, which would provide them opportunities not available under the obligatory Social Security annuity. Economists have long known that current consumption and investment—at both the individual and national levels—do not depend so much on current income as on permanent income, which is to say, wealth. It is difficult to estimate how much private wealth accumulation would have differed had Social Security been administered privately rather than publicly. How ever, the Social Security trust fund balance—the accumulated Social Security tax receipts less Social Security payments plus earnings—at the end of 2004 was $1.68 trillion, about two-fifths as large as the federal debt held by the public. Whereas private savings are channeled through financial markets and ultimately lent to individuals, businesses, and governments—s","PeriodicalId":305484,"journal":{"name":"National Economic Trends","volume":"5 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1900-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121679228","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"The seasonal cycle and the business cycle","authors":"Y. Wen","doi":"10.20955/ES.2006.17","DOIUrl":"https://doi.org/10.20955/ES.2006.17","url":null,"abstract":"","PeriodicalId":305484,"journal":{"name":"National Economic Trends","volume":"95 25","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1900-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"113944022","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Idiosyncratic stock volatility refers to the variation in returns to an individual company’s stock that is not explained by the overall market return. Given returns in a quarter, for example, we can run a regression of one company’s daily returns on daily market returns and use the standard deviation of the residuals as a measure of the idiosyncratic volatility of that company’s stock in that quarter. To obtain an aggregate measure, we calculate the idiosyncratic volatility for each of 500 stocks with the largest market capitalization using the CRSP (Center for Research of Security Prices) daily returns data and then calculate an average weighted by market value. In the accompanying chart, we plot this aggregate measure of idiosyncratic volatility for the period 1963:Q3 to 2002:Q4, with the shaded areas indicating business recessions dated by the National Bureau of Economic Research. We observe some interesting patterns. First, idiosyncratic volatility exhibits some persistence: If it is high, it is likely to remain at a relatively high level for a while. Second, idiosyncratic volatility fluctuates widely across time and it tends to rise especially during business recessions. It also has a dramatic upward spike during the stock market bubble in the late 1990s. Third, and most interestingly, as noted by many financial market observers, idiosyncratic volatility has increased on average in the past four decades: A linear time trend accounts for about 24 percent of its total variation. According to standard finance theory, a firm’s stock price is equal to its discounted expected future cash flows. Therefore, rising idiosyncratic volatility might reflect the fact that the firm-level economic performance has become more volatile. To investigate this hypothesis, some researchers have looked at firm-level variability in sales and earnings growth and have found upward trends in these measures as well. The increase in firm-level variability is in sharp contrast with the well-documented decline in the variability of the aggregate U.S. economy. Some tentative explanations have been put forward to reconcile the diverging trends in macroeconomic and firm-level volatilities. For example, Philippon (2003) suggests that the two phenomena can be explained simultaneously by the fact that goods markets have become more competitive.1 Compe ti tion between firms magnifies the effects of idiosyncratic productivity shocks, which helps explain the rise in firm volatility. At the same time, competitive pressures could induce firms to increase the frequency of their price adjustment, making the overall economy more resilient to aggregate demand shocks. The increased firm-level volatility has important implications for the U.S. economy. For example, with a higher degree of idiosyncratic volatility, a typical firm is presumably more vulnerable to bankruptcy risk and thus needs to pay a higher default premium to raise capital in the bond market. Indeed, Campbell and Taksler (
股票的特殊波动率是指个别公司股票的收益变化不能用整体市场收益来解释。例如，给定一个季度的回报，我们可以对一家公司的每日市场回报进行回归，并使用残差的标准差来衡量该公司股票在该季度的特殊波动性。为了获得一个总体度量，我们使用CRSP(证券价格研究中心)每日回报数据计算500只市值最大的股票的特质波动率，然后计算市值加权的平均值。在随附的图表中，我们绘制了1963年第三季度至2002年第四季度的特殊波动率的汇总指标，阴影区域表示国家经济研究局(National Bureau of Economic Research)确定的商业衰退日期。我们观察到一些有趣的模式。首先，特殊波动率表现出一定的持久性:如果它很高，它可能会在一段时间内保持在相对较高的水平。其次，特殊波动率在时间上波动很大，尤其是在商业衰退期间，它往往会上升。在20世纪90年代末的股市泡沫期间，它也有过一次戏剧性的上升。第三，也是最有趣的是，正如许多金融市场观察家所指出的那样，在过去的四十年里，特殊波动率平均有所增加:线性时间趋势约占其总变化的24%。根据标准金融理论，一家公司的股票价格等于其贴现后的预期未来现金流量。因此，特殊波动率的上升可能反映了企业层面经济表现变得更加不稳定的事实。为了调查这一假设，一些研究人员研究了公司在销售和盈利增长方面的可变性，并发现了这些指标的上升趋势。公司层面可变性的增加与美国总体经济可变性的下降形成鲜明对比。人们提出了一些尝试性的解释，以调和宏观经济和企业层面波动的不同趋势。例如，Philippon(2003)认为，这两种现象可以同时解释为商品市场变得更具竞争力企业之间的竞争放大了特殊生产率冲击的影响，这有助于解释企业波动性的上升。与此同时，竞争压力可能促使企业增加价格调整的频率，使整体经济对总需求冲击更具弹性。企业层面波动加剧对美国经济具有重要影响。例如，在特殊波动率较高的情况下，一家典型的公司可能更容易受到破产风险的影响，因此需要支付更高的违约溢价才能在债券市场上筹集资金。事实上，Campbell和Taksler(2003)发现，在1963年至1999年期间，在特殊风险较高的时期，公司债券和国债收益率之间的利差往往会扩大。这一解释与20世纪90年代末的债券市场特别相关，当时收益率利差大幅扩大，尽管投资者对美国经济的整体表现相当乐观。然而，如果我们考虑到这一时期特殊波动性的急剧上升，这一事件就不那么令人费解了。
{"title":"Volatile firms, stable economy","authors":"Hui Guo","doi":"10.20955/ES.2004.7","DOIUrl":"https://doi.org/10.20955/ES.2004.7","url":null,"abstract":"Idiosyncratic stock volatility refers to the variation in returns to an individual company’s stock that is not explained by the overall market return. Given returns in a quarter, for example, we can run a regression of one company’s daily returns on daily market returns and use the standard deviation of the residuals as a measure of the idiosyncratic volatility of that company’s stock in that quarter. To obtain an aggregate measure, we calculate the idiosyncratic volatility for each of 500 stocks with the largest market capitalization using the CRSP (Center for Research of Security Prices) daily returns data and then calculate an average weighted by market value. In the accompanying chart, we plot this aggregate measure of idiosyncratic volatility for the period 1963:Q3 to 2002:Q4, with the shaded areas indicating business recessions dated by the National Bureau of Economic Research. We observe some interesting patterns. First, idiosyncratic volatility exhibits some persistence: If it is high, it is likely to remain at a relatively high level for a while. Second, idiosyncratic volatility fluctuates widely across time and it tends to rise especially during business recessions. It also has a dramatic upward spike during the stock market bubble in the late 1990s. Third, and most interestingly, as noted by many financial market observers, idiosyncratic volatility has increased on average in the past four decades: A linear time trend accounts for about 24 percent of its total variation. According to standard finance theory, a firm’s stock price is equal to its discounted expected future cash flows. Therefore, rising idiosyncratic volatility might reflect the fact that the firm-level economic performance has become more volatile. To investigate this hypothesis, some researchers have looked at firm-level variability in sales and earnings growth and have found upward trends in these measures as well. The increase in firm-level variability is in sharp contrast with the well-documented decline in the variability of the aggregate U.S. economy. Some tentative explanations have been put forward to reconcile the diverging trends in macroeconomic and firm-level volatilities. For example, Philippon (2003) suggests that the two phenomena can be explained simultaneously by the fact that goods markets have become more competitive.1 Compe ti tion between firms magnifies the effects of idiosyncratic productivity shocks, which helps explain the rise in firm volatility. At the same time, competitive pressures could induce firms to increase the frequency of their price adjustment, making the overall economy more resilient to aggregate demand shocks. The increased firm-level volatility has important implications for the U.S. economy. For example, with a higher degree of idiosyncratic volatility, a typical firm is presumably more vulnerable to bankruptcy risk and thus needs to pay a higher default premium to raise capital in the bond market. Indeed, Campbell and Taksler (","PeriodicalId":305484,"journal":{"name":"National Economic Trends","volume":"16 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1900-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121612335","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Views expressed do not necessarily reflect official positions of the Federal Reserve System. The housing market appears to be cooling down after a long and prosperous run. Home prices may be retreating a bit in some of the hottest markets, but no one expects a widespread decline in home prices. One reason for this is the recent rise in home ownership rates. In 2001, there were 119.1 million housing units in the United States; 12.9 million units were vacant or seasonal, while 106.2 million were occupied as primary residences. Of those, 72 million were owner-occupied. The home ownership rate is defined as the number of units that are owner-occupied divided by the number of units occupied as primary residences. For 30 years, from 1965 to 1995, the average home ownership rate in the United States varied narrowly around 64 percent. Despite a wide variety of policies by government at all levels to stimulate homeownership, the rate seemed stuck permanently near that level. In 1995, however, the trend turned upward and now exceeds 68 percent. What explains the rise over the past decade? The demographics of home ownership may provide clues to understanding the rising trend in home ownership. The table shows that the average home ownership rate rose a mere 0.2 percent during the decade beginning in 1985. But this relatively flat trend masked considerable divergence among age groups. The home ownership rate for people aged 65 years and older rose by 3.4 percentage points, while the rates for all other age groups fell. The younger the group, the greater the decline. Since 1995, home ownership among the oldest group has continued to rise at the same rate as before. But the home ownership rates for all the younger groups stopped falling and began to rise. The turnaround was greatest for the two youngest groups. Understanding these trends requires an understanding of how the costs and benefits of homeownership have changed. Interest payments are an important part of the cost of home ownership, and mortgage interest rates have generally fallen since the early 1980s. This decline in interest rates, however, has been offset by a rise in housing prices so that the median mortgage payment as a percent of median income, though it has declined, has not declined smoothly over the past two decades. This index of housing cost fell quite dramatically, from 28.7 percent in January 1985 to 19.4 percent in December 1994. The index fluctuated between 17 percent and 20 percent after 1995 and now stands around 21 percent. A series of financial innovations has also contributed to the rise in younger home owners by allowing them to buy homes with little or no down payment. Examples include government programs by both the Clinton and Bush administrations to assist first-time buyers and the use of mortgage insurance and combination loans to reduce down payment requirements. A recent study finds that these innovations affecting the size of the down payment are the most important fac
本文所表达的观点不一定反映联邦储备系统的官方立场。在经历了长期繁荣之后，房地产市场似乎正在降温。在一些最热门的市场，房价可能会有所回落，但没有人预计房价会普遍下跌。其中一个原因是最近住房拥有率的上升。2001年，美国有1.191亿套住房;1290万套是空置或季节性的，而1.062亿套是主要住宅。其中，7200万套是自住房屋。房屋拥有率的定义是业主自住的单位数除以作为主要住宅使用的单位数。从1965年到1995年的30年间，美国的平均住房拥有率在64%上下波动。尽管各级政府出台了各种各样的政策来刺激住房拥有率，但这一比率似乎一直停留在这一水平附近。然而，在1995年，这一趋势开始上升，现在超过了68%。如何解释过去十年的增长?住房拥有率的人口统计数据可能为理解住房拥有率上升的趋势提供线索。该表显示，从1985年开始的十年间，平均住房拥有率仅上升了0.2%。但这种相对平缓的趋势掩盖了各年龄组之间的巨大差异。65岁及以上老年人的住房拥有率上升了3.4个百分点，而其他所有年龄组的住房拥有率都下降了。这个群体越年轻，下降幅度越大。自1995年以来，老年群体的住房拥有率继续以与以前相同的速度增长。但所有年轻群体的住房拥有率都停止了下降，开始上升。最年轻的两个组的转变最大。要了解这些趋势，就必须了解住房的成本和收益是如何变化的。利息支付是房屋所有权成本的重要组成部分，自20世纪80年代初以来，抵押贷款利率普遍下降。然而，利率的下降被房价的上涨所抵消，因此，抵押贷款支付中位数占收入中位数的百分比虽然有所下降，但在过去二十年中并没有平稳下降。住房成本指数急剧下降，从1985年1月的28.7%下降到1994年12月的19.4%。1995年以后，该指数在17% ~ 20%之间波动，目前在21%左右。一系列金融创新也促进了年轻购房者的增加，这些创新允许他们在很少或没有首付的情况下购买房屋。这方面的例子包括克林顿和布什政府协助首次购房者的政府项目，以及利用抵押贷款保险和组合贷款来降低首付要求。最近的一项研究发现，这些影响首付款金额的创新是解释住房拥有率上升的最重要因素，尤其是对年轻人和首次购房者而言。参见Matthew S. Chambers, Carlos Garriga和Dan Schlagenhauf，“住房拥有率变化的核算”，佛罗里达州立大学，2005年。
{"title":"Trends in home ownership","authors":"W. Gavin","doi":"10.20955/ES.2005.29","DOIUrl":"https://doi.org/10.20955/ES.2005.29","url":null,"abstract":"Views expressed do not necessarily reflect official positions of the Federal Reserve System. The housing market appears to be cooling down after a long and prosperous run. Home prices may be retreating a bit in some of the hottest markets, but no one expects a widespread decline in home prices. One reason for this is the recent rise in home ownership rates. In 2001, there were 119.1 million housing units in the United States; 12.9 million units were vacant or seasonal, while 106.2 million were occupied as primary residences. Of those, 72 million were owner-occupied. The home ownership rate is defined as the number of units that are owner-occupied divided by the number of units occupied as primary residences. For 30 years, from 1965 to 1995, the average home ownership rate in the United States varied narrowly around 64 percent. Despite a wide variety of policies by government at all levels to stimulate homeownership, the rate seemed stuck permanently near that level. In 1995, however, the trend turned upward and now exceeds 68 percent. What explains the rise over the past decade? The demographics of home ownership may provide clues to understanding the rising trend in home ownership. The table shows that the average home ownership rate rose a mere 0.2 percent during the decade beginning in 1985. But this relatively flat trend masked considerable divergence among age groups. The home ownership rate for people aged 65 years and older rose by 3.4 percentage points, while the rates for all other age groups fell. The younger the group, the greater the decline. Since 1995, home ownership among the oldest group has continued to rise at the same rate as before. But the home ownership rates for all the younger groups stopped falling and began to rise. The turnaround was greatest for the two youngest groups. Understanding these trends requires an understanding of how the costs and benefits of homeownership have changed. Interest payments are an important part of the cost of home ownership, and mortgage interest rates have generally fallen since the early 1980s. This decline in interest rates, however, has been offset by a rise in housing prices so that the median mortgage payment as a percent of median income, though it has declined, has not declined smoothly over the past two decades. This index of housing cost fell quite dramatically, from 28.7 percent in January 1985 to 19.4 percent in December 1994. The index fluctuated between 17 percent and 20 percent after 1995 and now stands around 21 percent. A series of financial innovations has also contributed to the rise in younger home owners by allowing them to buy homes with little or no down payment. Examples include government programs by both the Clinton and Bush administrations to assist first-time buyers and the use of mortgage insurance and combination loans to reduce down payment requirements. A recent study finds that these innovations affecting the size of the down payment are the most important fac","PeriodicalId":305484,"journal":{"name":"National Economic Trends","volume":"8 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1900-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129864982","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Views expressed do not necessarily reflect official positions of the Federal Reserve System. The U.S. dollar has depreciated by more than 26 percent in trade-weighted terms since its peak in 2002. The lower relative prices paid by foreigners for U.S. goods and services are expanding exports and helping reduce the current account deficit. At the same time, however, there is concern over a potential “firesale” of U.S. firms—i.e., a case in which U.S. firms become so cheap that foreign investors trigger a new wave of international takeovers. Although economic theory has no clear-cut way to forecast the welfare effects of international changes of ownership or entry of new foreign firms, empirical research can shed light on how multinational corporations have contributed to aggregate productivity. And wages—as discussed previously in this publication1—tend to track productivity. Thus, understanding how multinationals affect productivity growth can help to evaluate the impact of foreign acquisitions on the U.S. economy. U.S. labor productivity (output per hour) has increased at an average annual rate of 1.84 percent between 1977 and 2006—faster than most countries, at least since 1995. To help find the source of this impressive productivity, we can separate U.S. gross domestic product and productivity growth into that produced by exclusively domestic firms and that produced by multinational firms (i.e., foreign firms with U.S. production units and U.S. firms with foreign production units). The results of a recent study2 show that private multinational nonfarm, nonfinancial firms contribute only 40 percent of the output of nonfinancial corporations but more than 75 percent of the increase in labor productivity between 1977 and 2000. Moreover, all of this new productivity in nonfinancial corporate sectors in the late 1990s can be traced back to multinationals. How have such large productivity gains been possible? Various studies suggest that the productivity advantage of multinationals is caused by technological and organizational advantages that are specific to these firms, rather than to the country in which they operate. Although similar technologies are available at approximately the same prices to both multinational and non-multinational firms, the management structure of multinationals allows them to use new technologies more efficiently, particularly information technologies (IT). The largest productivity advantages are recorded in sectors that make substantial use of IT, such as retail and wholesale, and sectors with superior people management. As the authors of one of these studies put it: “It ain’t what you do...but the way you do IT.”3 Hence, even though the ownership of some companies may be transferred abroad because of a “firesale” effect, these firms, along with U.S. multinationals, provide an important contribution to U.S. productivity growth and ultimately to the growth of wages, particularly in ITintensive sectors. —Silvio Contessi
{"title":"Multinationals make the most of IT","authors":"Silvio Contessi","doi":"10.20955/ES.2008.14","DOIUrl":"https://doi.org/10.20955/ES.2008.14","url":null,"abstract":"Views expressed do not necessarily reflect official positions of the Federal Reserve System. The U.S. dollar has depreciated by more than 26 percent in trade-weighted terms since its peak in 2002. The lower relative prices paid by foreigners for U.S. goods and services are expanding exports and helping reduce the current account deficit. At the same time, however, there is concern over a potential “firesale” of U.S. firms—i.e., a case in which U.S. firms become so cheap that foreign investors trigger a new wave of international takeovers. Although economic theory has no clear-cut way to forecast the welfare effects of international changes of ownership or entry of new foreign firms, empirical research can shed light on how multinational corporations have contributed to aggregate productivity. And wages—as discussed previously in this publication1—tend to track productivity. Thus, understanding how multinationals affect productivity growth can help to evaluate the impact of foreign acquisitions on the U.S. economy. U.S. labor productivity (output per hour) has increased at an average annual rate of 1.84 percent between 1977 and 2006—faster than most countries, at least since 1995. To help find the source of this impressive productivity, we can separate U.S. gross domestic product and productivity growth into that produced by exclusively domestic firms and that produced by multinational firms (i.e., foreign firms with U.S. production units and U.S. firms with foreign production units). The results of a recent study2 show that private multinational nonfarm, nonfinancial firms contribute only 40 percent of the output of nonfinancial corporations but more than 75 percent of the increase in labor productivity between 1977 and 2000. Moreover, all of this new productivity in nonfinancial corporate sectors in the late 1990s can be traced back to multinationals. How have such large productivity gains been possible? Various studies suggest that the productivity advantage of multinationals is caused by technological and organizational advantages that are specific to these firms, rather than to the country in which they operate. Although similar technologies are available at approximately the same prices to both multinational and non-multinational firms, the management structure of multinationals allows them to use new technologies more efficiently, particularly information technologies (IT). The largest productivity advantages are recorded in sectors that make substantial use of IT, such as retail and wholesale, and sectors with superior people management. As the authors of one of these studies put it: “It ain’t what you do...but the way you do IT.”3 Hence, even though the ownership of some companies may be transferred abroad because of a “firesale” effect, these firms, along with U.S. multinationals, provide an important contribution to U.S. productivity growth and ultimately to the growth of wages, particularly in ITintensive sectors. —Silvio Contessi","PeriodicalId":305484,"journal":{"name":"National Economic Trends","volume":"2 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1900-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128900895","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Views expressed do not necessarily reflect official positions of the Federal Reserve System. Metropolitan Growth: Sun Belt vs. Snow Belt For more than a century, cities in the United States with more skilled residents have grown faster than comparable cities with fewer educated people.1 The reasons why the relationship between skills and population growth is so persistent are not clearly understood. One explanation proposes that skills (measured by the percentage of residents with a bachelor’s degree) foster growth because an educated population is an indicator of favorable quality of life, which attracts more people to a city. An alternative explanation argues that having skilled residents allows cities to grow because educated people adapt more easily to a constantly evolving economy. The latter explanation views skills as a production amenity, whereas the first views skills as a consumption amenity. Recent evidence suggests that productivity drives most of the connection between skills and growth, especially in metropolitan areas, supporting the production amenity explanation. Economists Edward Glaeser and Albert Saiz have found that education levels have a positive impact on the growth of wages and housing prices, as a result of rising productivity. If skills are merely consumption amenities, they argue, then wages would decline following migration to a city.2 Interestingly, the relationship between skills and city growth does not hold among all types of cities. In the latter part of the 20th century, cities with warm and dry climates have dominated the list of the fastest growing metropolitan areas, in terms of both population and employment growth.3 A favorable climate, especially since the advent of air conditioning, seems to have spurred growth in such areas without relying on a high level of education in the local population. The correlation between skills and growth, however, seems to be more important in cold and wet metropolitan areas (the Snow Belt) than in warm and dry locations (the Sun Belt). The chart presents the correlation between the fraction of residents aged 25 years or older with college degrees as of 1990 and population growth in 155 Snow Belt metropolitan areas over the 1990-2000 decade. The correlation between skills and population growth is 0.52 and the relationship is statistically significant. The line of best fit in the chart suggests that, as the fraction of people with bachelor’s degrees increases by 1 percent, population growth in the following decade increases by 1.2 percent. A similar exercise among Sun Belt metropolitan areas reveals no significant correlation between skill levels and subsequent population growth, perhaps, in part, because the Sun Belt receives a disproportionate share of the immigrant population. The same pattern arises if, instead of population growth, one examines employment growth, as measured by the change in the number of employed civilians aged 16 years or older. The correlation between
{"title":"Metropolitan growth: sun belt vs. snow belt","authors":"Rubén Hernández-Murillo","doi":"10.20955/ES.2004.24","DOIUrl":"https://doi.org/10.20955/ES.2004.24","url":null,"abstract":"Views expressed do not necessarily reflect official positions of the Federal Reserve System. Metropolitan Growth: Sun Belt vs. Snow Belt For more than a century, cities in the United States with more skilled residents have grown faster than comparable cities with fewer educated people.1 The reasons why the relationship between skills and population growth is so persistent are not clearly understood. One explanation proposes that skills (measured by the percentage of residents with a bachelor’s degree) foster growth because an educated population is an indicator of favorable quality of life, which attracts more people to a city. An alternative explanation argues that having skilled residents allows cities to grow because educated people adapt more easily to a constantly evolving economy. The latter explanation views skills as a production amenity, whereas the first views skills as a consumption amenity. Recent evidence suggests that productivity drives most of the connection between skills and growth, especially in metropolitan areas, supporting the production amenity explanation. Economists Edward Glaeser and Albert Saiz have found that education levels have a positive impact on the growth of wages and housing prices, as a result of rising productivity. If skills are merely consumption amenities, they argue, then wages would decline following migration to a city.2 Interestingly, the relationship between skills and city growth does not hold among all types of cities. In the latter part of the 20th century, cities with warm and dry climates have dominated the list of the fastest growing metropolitan areas, in terms of both population and employment growth.3 A favorable climate, especially since the advent of air conditioning, seems to have spurred growth in such areas without relying on a high level of education in the local population. The correlation between skills and growth, however, seems to be more important in cold and wet metropolitan areas (the Snow Belt) than in warm and dry locations (the Sun Belt). The chart presents the correlation between the fraction of residents aged 25 years or older with college degrees as of 1990 and population growth in 155 Snow Belt metropolitan areas over the 1990-2000 decade. The correlation between skills and population growth is 0.52 and the relationship is statistically significant. The line of best fit in the chart suggests that, as the fraction of people with bachelor’s degrees increases by 1 percent, population growth in the following decade increases by 1.2 percent. A similar exercise among Sun Belt metropolitan areas reveals no significant correlation between skill levels and subsequent population growth, perhaps, in part, because the Sun Belt receives a disproportionate share of the immigrant population. The same pattern arises if, instead of population growth, one examines employment growth, as measured by the change in the number of employed civilians aged 16 years or older. The correlation between","PeriodicalId":305484,"journal":{"name":"National Economic Trends","volume":"28 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1900-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121463096","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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