Out of paradigm in that Bernstein finds NAIRU useful even if problematic.
One useful was to assess labor market tightness is to compare the unemployment rate to a construct called the non-accelerating inflationary rate of unemployment, or the NAIRU. The idea behind the NAIRU is that a) there’s a tradeoff between low unemployment and inflation, and b) there’s a rate of unemployment that’s consistent with stable inflation. The implication is that if unemployment falls below the NAIRU, inflation will keep accelerating.
In fact, it’s a slippery concept, this NAIRU idea, and the historical evidence for its existence is mixed at best. Back in the mid-90s, economists though it was 6%, and when the jobless rate fell below that, they badgered the Fed to raise interest rates so as to forestall the inflationary spiral they were sure was forthcoming.
But it turned out that the spiral was a phantom menace—price growth actually decelerated in these years and the jobless rate fell below 4% for a few months in 2000. Most importantly, from my perspective, very low jobless rates in the latter 1990s shows up quite clearly in Figure 1 as helping to generate uniquely favorable income trends for middle and low-income families.But I still think the concept is useful, and that the estimated NAIRU provides a rough benchmark against which to compare the actual unemployment rate. For example, analysts like those at the Congressional Budget Office, who estimate the NAIRU, make adjustments for demographics that are useful in figuring out the full-employment unemployment rate. As our labor force ages, we’d expect the NAIRU to fall, because older workers tend to have lower unemployment rates.But even using NAIRU as a standard, Bernstein argues that full employment deficiency (FED) exacerbates inequality.
The coefficient on FED tell you the percent change in real income at each level that you’d expect to see for each point you’re above the NAIRU. So, for low-incomes (20th percentile), that elasticity is -1.3% and statistically significant. For middle incomes, it’s about -0.8% and again, significant. For high incomes, it’s -0.3 and insignificant, meaning that deviation from full employment doesn’t much hurt high income families. R-squared, a measure between 0 and 1 of how well the regression explains changes in real incomes, is around 0.33 for middle and low-income families and only about one-third that amount for high-income families.Read it at On the Economy
Full Employment: A Force Against Rising Inequality and Stagnant Incomes
by Jared Bernstein
Economists talk about employment in percentages again.
ReplyDeleteDehumanisation at its worse.
I might argue that payday loans top that.
ReplyDeleteAs far as inflation goes, this is from Warren's comments at Winterspeak's:
ReplyDelete"Q is 'net financial assets' and horizontal activity doesn't change that.
And Price setting for a monopolist takes two forms, as per Marshall (1890).
1. The 'own rate' which is how the thing trades for itself. For a currency this is the 'risk free' interest rate which govt sets (currently the fed votes on it, etc)
2. how the thing exchanges for other goods and services, which we call the price level.
For the US, this means the price level is a function of prices paid by gov when it spends (and/or collateral demanded when it lends) whether it knows it or not, likes it or not.
We need the gov's $ to pay our taxes (and net save) and the govt 'tells us' when it spends what we have to do to get it."
Unemployment levels HAVE NOTHING TO DO WITH STABLE PRICES. It is all monopolist activities that set prices.
You could see here that with a JG, as long as the govt fixed the JG compensation package and didnt change it, this would result in a stable price for JG.