Which economic issues got people talking in 2016? From wages to a low natural real rate of interest, check out the most viewed and shared SF Fed Economic Letters published since our 2015 roundup.
The Effects of Minimum Wages on Employment
The minimum wage has gained momentum among policymakers as a way to alleviate rising wage and income inequality. Much of the debate over this policy centers on whether raising the minimum wage causes job loss, as well as the potential magnitude of those losses. Recent research shows conflicting evidence on both sides of the issue. In general, evidence suggests that it is appropriate to weigh the cost of potential job losses from a higher minimum wage against the benefits of wage increases for other workers.
Monetary Policy in a Low R-star World
Central banks and governments around the world must be able to adapt policy to changing economic circumstances. The time has come to critically reassess prevailing policy frameworks and consider adjustments to handle new challenges, specifically those related to a low natural real rate of interest. While price level or nominal GDP targeting by monetary authorities are options, fiscal and other policies must also take on some of the burden to help sustain economic growth and stability.
Reducing Poverty via Minimum Wages, Alternatives
Setting a higher minimum wage seems like a natural way to help lift families out of poverty. Minimum wages target individual workers with low wages, rather than families with low incomes. As a result, a large share of the higher income from minimum wages flows to higher-income families. Policies that directly address low family income, such as the earned income tax credit, are more effective at reducing poverty.
What’s Up with Wage Growth?
While most labor market indicators point to an economy near full employment, a notable exception is the sluggish rise of wages. While higher-wage baby boomers have been retiring, lower-wage workers sidelined during the recession have been taking new full-time jobs. Together these two changes have held down measures of wage growth. Slow wage growth likely reflects recent cyclical and secular shifts in the composition rather than a weak labor market.
Will the Economic Recovery Die of Old Age?
Is the current recovery more likely to end because it’s lasted so long? Have various imbalances and rigidities accumulated to make the economy frailer and more susceptible to a recessionary shock? Recent history suggests the answer is no. Instead, a long recovery appears no more likely to end than a short one. Like Peter Pan, recoveries appear to never grow old.