- 'Unemployment Benefits and Job Match Quality'
- Links for 07-10-15
- 'Are Larger Cities Losing Their Edge?'
- 'Fiscal Policy and the Long-Run Neutral Real Interest Rate'
Posted: 10 Jul 2015 12:22 AM PDT
From Vox EU:
Unemployment benefits and job match quality, by Arash Nekoei and Andrea Weber: The generosity of unemployment insurance is often cited as a reason for long spells of joblessness. But this view neglects other important, and potentially positive, economic aspects of such programs. Using Austrian data, this column presents evidence that unemployment insurance has a positive effect on the quality of jobs that recipients find. This can in turn have a positive effect on future tax revenues, and has implications for the debate on optimal insurance generosity. ...
Posted: 10 Jul 2015 12:06 AM PDT
Posted: 09 Jul 2015 11:01 AM PDT
From the NBER Digest:
Are Larger Cities Losing Their Edge?: Nearly a century ago, the eminent economist Alfred Marshall hypothesized that ideas were more likely to germinate into useful inventions in large cities than in smaller ones. Innovators working in close proximity to other creative minds, he argued, had a greater opportunity to learn of the latest advances and to engage in brainstorming.
In Cities and Ideas (NBER Working Paper No. 20921), Mikko Packalen and Jay Bhattacharya test this conjecture. They study U.S. patents granted between 1836 and 2010, and calculate the population density per square mile where the inventor resided. This enables them to distinguish patents that were developed in urban areas from those that were developed elsewhere. They also identify the key concepts that each patent refers to, which in turn reflect the scientific or engineering foundation on which the patent is based. For each concept, they search the entire patent database to determine the date on which this concept was first mentioned. This makes it possible to classify patents based on the age of their scientific background. A patent for which the key concept first appears in the patent database just one year before the patent was filed is based on "younger" innovations than a patent for which the key concept has been referenced in patents for several decades.
The authors find that, on average, patents that were filed by inventors in densely populated areas relied on newer science than patents filed by their more-isolated peers until the middle of the 20th century. In 1900, for example, a two standard deviation increase in the population density of an inventor's home town was associated with a 20 percent increase in the probability that the patent would be one that relied on the latest scientific advances. The study defines a patent as using "latest advances" if the age of the patent's key concept falls in the youngest 5 percent of the concept age distribution.
The tendency for patents filed by inventors in densely populated areas to rely on newer scientific breakthroughs has waned in recent decades. There was a decline between the 1950s and the 1970s, and, after an uptick in the 1980s, a decline again in the 1990s and 2000s. "Taken together," the authors write, "our results suggest that in the late 20th century agglomeration has become less important to innovation both in absolute terms and relative to other factors—like collaboration—that predict the use of newer ideas."
The authors hypothesize that the recent decline in the difference in use of newer breakthroughs between more- and less-densely populated areas may be due to the spread of new communication technologies that have made new ideas available more readily to all. For example, with the emergence of the Internet, virtual communities may be erasing the advantage of physical proximity, and those in less-urban areas may be able to participate as effectively as those in larger cities in debating the merits and application of new ideas.
Posted: 09 Jul 2015 08:59 AM PDT
Narayana Kocherlakota, President of the Federal Reserve Bank of Minneapolis, says more government debt would help the Fed:
Fiscal Policy and the Long-Run Neutral Real Interest Rate: Thanks for the introduction and the invitation to be here today.
In my remarks today, I will make three points about the U.S. economy.
First, there has been a significant decline in the long-run real interest rate, reflecting (in large part) a decline in what is sometimes called the long-run neutral real interest rate. (By the long-run neutral real interest rate, I mean the real interest rate that I expect to prevail when the economy is at maximum employment and inflation is at the central bank's target.) Second, this decline in the long-run neutral real interest rate is likely to mean that monetary policymakers will be more constrained by the lower bound on the nominal interest rate in the future than they have been in the past.
My third point concerns an important connection between monetary and fiscal policy. I consider a permanent increase in the market value of the public debt, financed by an increase in taxes or reduction in transfers. This policy change increases the supply of assets available to investors. I argue that, in a wide class of plausible economic models, such an increase in supply would push downward on debt prices, and so upward on the long-run neutral real interest rate.
When I put these three points together, I reach my main conclusion. The decline in the long-run neutral real interest rate increases the likelihood that the economy will run into the lower bound on nominal interest rates. Accordingly, there is an enhanced risk that the Federal Open Market Committee (FOMC) will undershoot its maximum employment and 2 percent inflation objectives. Fiscal policymakers can mitigate this risk by choosing to maintain higher levels of public debt than markets currently anticipate.
I want to be clear at the outset that I am not saying that it is appropriate for fiscal policymakers to increase the long-run level of public debt. I am simply pointing to one benefit associated with such an increase: It allows the central bank to be more effective in mitigating the impact of adverse shocks to aggregate demand. I will point to other costs (and benefits) associated with increasing the level of public debt. Sorting through them is outside the scope of my remarks today, and really outside of my purview as a monetary policymaker. ...
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