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 Tristan Loa, Chase Parry, Jack Spira, and Louise Sheiner.
Analyzing a proprietary S&P Global database on data centers with site-level information on facilities, capacity, and annualized revenue, Fernando E. Alvarez of the University of Chicago and co-authors find that counties with larger increases in data center activity experienced measurable gains in local economic activity between 1995 and 2020. The effects show up in construction employment and data-processing employment, as well as in taxable income and wages. But the authors also find that data centers raise electricity prices and are associated with higher house prices, benefiting property owners while increasing costs for renters and prospective homebuyers. Counties, the authors suggest, should consider the trade-off between economic activity and affordability when deciding whether to build a data center.
In April 2024, California became the first state in the U.S. to raise the fast-food minimum wage to $20 per hour—a level equal to 77% of the state’s median hourly wage—drawing predictions of large-scale job losses. Arindrajit Dube of UMass Amherst finds that the law raised fast-food wages by about 7% with only modest to no employment losses. Using data covering wages, employment status, and employee turnover, Dube compares California to states still using the $7.25 federal minimum wage while adjusting for the state’s unusual fast-food employment trends before and after Covid. Despite the unusually high wage floor, the estimated employment response falls within the range seen in past state minimum wage increases. Because wages rose and employment was largely unchanged, total earnings in California’s fast-food sector rose. Dube also finds that worker separations fell sharply, suggesting that higher wages reduced turnover and helped mute the employment response.
Immigration to the U.S. surged in the early 2020s. Before the pandemic, from 2000 to 2019, net immigration averaged about one million per year; from 2021 to 2024, the Congressional Budget Office estimates that net immigration averaged 2.6 million per year. Using administrative data from immigration agencies and courts with survey data on household consumption and employment, Anton Cheremukhin of the Federal Reserve Bank of Dallas and co-authors find that this surge was largely driven by unauthorized immigrants who tend to work in lower-skilled, lower-wage jobs and spend a much higher portion of their income than the native-born and other recent immigrants. In a model calibrated to match these population characteristics, the authors estimate that the deflationary effect of increased labor supply and the inflationary effects of additional consumer demand and investment demand mostly offset one another, such that the immigration surge had negligible effects on inflation but provided a temporary boost to economic growth.
"One important factor shaping the outlook is the conflict in the Middle East. Even if efforts to resolve hostilities and reopen the Strait of Hormuz succeed relatively soon, it will likely take some time to rebuild infrastructure and replenish inventories. So, supply disruptions could persist, possibly inducing lasting changes to some global linkages," says Susan Collins, President of the Federal Reserve Bank of Boston.
"These structural changes have important implications for how the current energy shock is likely to transmit through the U.S. economy. First, lower oil intensity implies that a given oil price rise will have less adverse effects on inflation, real activity, and employment. And second, becoming a net energy exporter should result in even smaller negative effects on real activity and employment because higher oil prices boost revenues of domestic oil producers, which in turn stimulates demand. At the same time, this positive demand effect could add to inflationary pressures.
However, this relatively benign assessment is not without substantial downside risks. A prolonged conflict would put even more pressure on already-strained global oil supplies. The current supply contraction is quite large by historical standards; although so far, the shortage has been partly offset by countries running down their inventories. But if shipments through the Strait do not resume soon, global economic strains – which are already high, especially in Asia – will intensify. This would increase knock-on effects on global supply chains and exacerbate inflationary pressures and adverse effects on domestic economic activity."
15th Annual Municipal Finance Conference on July 21, from 9:30 a.m. to 6:30 p.m., and July 22, from 9:00 a.m. to 12:45 p.m. EDT. Both in-person and live stream attendance options are available.
About the Hutchins Center on Fiscal and Monetary Policy at Brookings
