The Hutchins Roundup brings the latest thinking in fiscal and monetary policy to your inbox. Have something you'd like us to include in the next Roundup? Email us and we'll take a look.
This edition was written by Elijah Asdourian, Alex Conner, Georgia Nabors, and Louise Sheiner.
State ban-the-box laws block employers from asking whether applicants have criminal records. Using data from 2004 to 2019 on 25- to 44-year-old men with less than a college degree, Robert Kaestner and Xufei Wang of the University of Chicago find that the laws produce no significant impact on employment, regardless of age or race. Ban-the-box laws that specifically target public or private sector employers also yield no meaningful employment effects. They conclude that the significant employment impacts observed in past ban-the-box research are likely spurious and do not hold over a longer time period.
In the months following the outbreak of COVID-19, Economic Impact Payments and the Paycheck Protection Program provided fiscal support to households and businesses, respectively. Using data on motor vehicle sales and the Consumer Expenditure Survey, Jack Dunbar of the University of Pennsylvania and co-authors find that these policies boosted new car sales by 12% in 2020, or 1.75 million cars. They also find that the increase in sales caused by the fiscal programs accounted for 70% of the declines in inventory through 2021. Lastly, the authors find that the stimulus-induced demand, which coincided with supply constraints that reduced inventories, accounted for 20% of the increase in vehicle prices compared to pre-pandemic.
Masao Fukui of Boston University and co-authors, using transcripts of corporate earnings calls from 2002 to 2023, find that firms typically don’t change their required return on capital (their discount rates) in response to changes in expected inflation. “Sticky” discount rates imply that increases in expected inflation lower real discount rates, raising investment. Stickiness also makes the discount rate depend more on the future cost of capital, reducing the sensitivity of investment to changes in short-term interest rates and making traditional monetary policy less effective. The authors demonstrate that moving the inflation target, even in response to temporary shocks, becomes an important monetary policy tool because long-run inflation expectations directly affect real discount rates.
“I am concerned about global spillovers from the excess capacity that we are seeing in China. In the past, in industries like steel and aluminum, Chinese government support led to substantial overinvestment and excess capacity that Chinese firms looked to export abroad at depressed prices. This maintained production and employment in China but forced industry in the rest of the world to contract. Now, we see excess capacity building in 'new' industries like solar, EVs, and lithium-ion batteries," says Janet Yellen, U.S. Secretary of the Treasury.
“China’s overcapacity distorts global prices and production patterns and hurts American firms and workers, as well as firms and workers around the world. Challenges for individual firms can lead to concentrated supply chains, negatively impacting global economic resilience. These are concerns that I increasingly hear from government counterparts in industrialized countries and emerging markets, as well as from the business community globally. It is important to the president and me that American firms and workers can compete on a level playing field. We have raised overcapacity in previous discussions with China and I plan to make it a key issue in discussions during my next trip there."
In January 2024, the Hutchins Center on Fiscal and Monetary Policy at Brookings convened about 40 leading labor economists from academia, think tanks, and the Federal Reserve to discuss recent developments in the labor market. Read a summary of that conversation.
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