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 Sarah Ahmad, Emily Araujo, Tristan Loa, Jack Spira, and Louise Sheiner.
Most research on the effects of immigration on labor market outcomes has focused on competition between immigrants and native workers with similar skills. But immigrants are also consumers, and their spending patterns may increase demand for certain types of labor. Sigurd Galaasen of the Bank of Norway and co-authors examine these channels using data on wages and sector-level spending In Norway after the 2004 EU expansion, when the share of migrants in Norway’s labor force rose from .5% to 4%. They find that native workers in sectors more exposed to immigrant consumption saw persistent earnings gains relative to workers in less exposed sectors—about 1.3% higher at the 75th percentile of exposure than at the 25th. In contrast, exposure to immigrant labor supply had little net effect on Norwegian income, with modest gains for college-educated native workers and modest losses for less-educated ones, consistent with immigrants being closer substitutes for less-educated labor. Demand exposure was uncorrelated with supply exposure however, meaning that the gains from immigrant consumption did not offset the wage losses experienced by less-educated native workers facing greater labor market competition.
Projected long-term decreases in the global population may reduce greenhouse gas (GHG) emissions, which warm the planet and are expected to slow economic growth, but may also reduce productivity through less innovation. Which effect dominates? Mark Budolfson of the University of Texas at Austin and co-authors augment a standard climate-economy model to account for the relationship between demographic change and productivity. Comparing UN projections of population decline with an alternative scenario in which population continues to rise, they find that global temperature in 2200 is less than 0.1 degrees Celsius higher in the high-population scenario. This is in large part a result of the respective timing of depopulation and decarbonization: global population is not expected to decline for several decades, while per capita emissions are expected to decline more rapidly, after which additional annual emissions will only comprise a small portion of cumulative atmospheric GHG. By contrast, productivity in 2200 is 10% higher in the high-population scenario, with far greater effects on output.
Investors are typically willing to pay a convenience yield for Treasurys, given their status as the world's primary reserve asset, but this premium has declined over time. Zhengyang Jiang of Northwestern University, Tony Zhang of the Federal Reserve Board, and Robert Richmond of New York University show that the convenience yields for Treasurys at the 10-year horizon, measured as the spread between maturity-matched swap rates and Treasury yields, falls by 0.94 percentage point when the supply of long-term debt increases by 5% of GDP. In contrast, convenience yields of short-term Treasurys are much less sensitive to changes in supply. The authors estimate that the decline in seigniorage revenue from 1998 to 2023—measured as the market-weighted sum of convenience yields across maturity buckets—can be attributed to changes in the supply of Treasurys. Issuing more short-term Treasurys could preserve the seigniorage revenue, they note, but would expose the government to greater rollover risk.
“Despite progress on lowering inflation, there are potential upside risks if negotiations result in higher tariffs or if firms raise goods prices independent of any tariff pass-through. Although we have not seen evidence of disruptive impacts on supply chains, changes in global trade patterns could lead to an increase in prices for goods and services. The current conflict in the Middle East or other geopolitical tensions could also lead to higher commodity prices," says Michelle Bowman, Vice Chair of Supervision.
“...I remain focused on how new policies evolve and whether future data releases will provide perspective about their economic impacts. On trade policy, I expect that negotiations will ultimately result in lower tariff rates than are currently in place, consistent with the resumption of financial market optimism. Further, should we see effects on inflation this year, I expect that increased slack in the economy will limit this to a small, one-off impact.
In my view, it was appropriate to recognize that the balance of risks has shifted. In fact, the data have not shown clear signs of material impacts from tariffs and other policies. I think it is likely that the impact of tariffs on inflation may take longer, be more delayed, and have a smaller effect than initially expected, especially because many firms front-loaded their stocks of inventories. And, all considered, ongoing progress on trade and tariff negotiations has led to an economic environment that is now demonstrably less risky. The change in our monetary policy statement appropriately incorporates this shift in the balance of risks as well as the rapid improvement in many measures of uncertainty.”
Join us for an event
The Hutchins Center on Fiscal and Monetary Policy invites you to attend the 14th annual Municipal Finance Conference on Tuesday, July 22 and Wednesday, July 23. The event will be held both online and in-person.
About the Hutchins Center on Fiscal and Monetary Policy at Brookings
