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This edition was written by Chesapeake Dowdy, Andrew Rosin, Jack Spira, and Louise Sheiner
Concerns about state capacity, or the government’s ability to deliver on policy goals, have put a spotlight on whether public sector compensation is enough to recruit skilled workers. Byron Lutz and David Ratner of the Federal Reserve Board and Louise Sheiner of Brookings argue that standard measures of compensation mismeasure the value of pensions and miss other important aspects of public employment. They develop a measure that properly values pension benefits and also accounts for retiree health care and job security. They find that compensation for state and local government workers was 13% higher than that of private sector workers with similar observable characteristics in 2011, but 3% lower by 2023. This decline occurred in all 50 states and was sharpest for college-educated workers without union representation. Relative wages for state and local workers peaked in 2009 and by 2024 were 12% below those of observably similar private sector workers, while defined benefit pensions and retiree health care fell as a share of compensation. The job-security advantage of government employment also has narrowed: the annual probability of job loss for state and local workers is now about 1.8 percentage points lower than the rate for observably similar private sector workers, down from about 3 points in 2009. The authors say declines in relative compensation may make it more difficult for state and local governments to recruit and retain the qualified workforce needed to implement policies and deliver high-quality services.
Most population projections assume that fertility rates in low-fertility societies will eventually reverse course and stabilize at a low level. Diane Coffey of the University of Texas and coauthors examine fertility data around the world from 1950 to 2023 and find that fertility rates in countries with very low fertility have continued to decline, with no evidence of rebound or even stabilization. Countries with fertility rates between 1.45 and 1.55 children per woman subsequently saw fertility decline at an average annual rate of 0.6%. Countries with fertility rates between 1.95 and 2.05, just below replacement, subsequently saw fertility decline even faster, at 1.1% a year. To evaluate whether delayed parenthood could explain the observed declines in fertility, the authors also examine completed fertility for cohorts born between 1935 and 1971 in 31 countries. They find a similar pattern: among the lowest-fertility cohorts for which enough subsequent data are available, those with fertility rates between 1.45 and 1.55 were followed by cohorts with lower completed fertility. The authors caution, however, that the data provide little evidence about what happens once fertility falls below 1.45 children per woman, where observations are too sparse to determine whether fertility will stabilize, rebound, or continue to decline.
The unemployment rate for recent college graduates was 7.3% in the summer of 2026, prompting concerns that AI is making it harder for new graduates to find jobs. Using Current Population Survey microdata from January 2022 to August 2026, Robert W. Fairlie and Jane Wu of UCLA find that the unemployment rate this summer was not significantly higher than the previous four summers, which included years before and during the rapid spread of generative AI. Further, the change in unemployment for recent graduates over the past five summers was not unusually large relative to the change in unemployment for older graduates or young non-college graduates. These results hold even when the authors broaden their definition of unemployment to include individuals who want a job but are not actively searching for one (these individuals are typically classified as not in the labor force). Because AI could affect new graduates by reducing opportunities to enter the labor market rather than by displacing existing workers, the authors emphasize the importance of measuring not only the number of jobs added or lost, but also the number of graduates “who have yet to gain a foothold in the labor force in the first place.”
"As I consider the future path of monetary policy, I will continue to assess the underlying trends in inflation and the balance of supply and demand in the economy. With the policy action we took at our September meeting, there is no need for urgency, and we have time to gather more information. The accumulation of more data should provide greater clarity on the underlying trends in the economy and the associated risks to achieving our goals—and thereby the appropriate setting of monetary policy," says John Williams, President of the Federal Reserve Bank of New York.
"If the economy evolves in a manner broadly consistent with my forecast, one further upward adjustment of the federal funds target range may be appropriate late this year to support a timelier return of inflation to target. But that is just my forecast, and time—and the totality of the data—will tell."
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