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This edition was written by Alex Conner, Tristan Loa, Georgia Nabors, Comfort Oshagbemi, and Louise Sheiner.
James J. Choi of Yale and co-authors analyze data on nine 401(k) plans to examine the medium- and long-term effects of automatic enrollment and auto-escalation (automatic increases in contribution rates) on retirement savings. Comparing the savings behavior of 55,937 employees hired before and 62,430 employees hired after the plans were introduced, they find that auto-enrollment increases the long-run saving rate by 0.6% of income and auto-escalation increases it by an additional 0.3%. These effects are smaller than previous estimates based on shorter time horizons. Several factors explain the discrepancy: many workers opt out of auto-escalation as the contribution rate increases; workers often leave their firms before employer contributions are fully vested; and workers often cash out their 401(k) balances when they leave the firm. The authors conclude that reducing the liquidity of retirement savings before retirement and increasing compulsory savings may be more effective strategies for boosting saving rates.
Combining administrative data from the Small Business Administration (SBA) disaster loan program with credit agency records, Benjamin Collier of Temple University and co-authors find that loans from the program significantly reduced financial stress following natural disasters. Comparing applicants who did receive loans versus those who, despite being otherwise similar, did not, the authors show that emergency credit reduced the bankruptcy rate from 3.3% to 1.3% and reduced the rate of delinquency by roughly 5 percentage points three years after the disaster. They also find that the SBA program does not compete with private lenders. Instead, they show that households that received emergency credit from the SBA were 5 percentage points more likely to have a new auto loan and 2.5 percentage points more likely to have a mortgage. The average recipient took on roughly $6,000 more in private debt over the three-year window. The authors write, “These effects illustrate the importance of addressing households’ emergency liquidity needs. By enabling repairs to home damages, the effects of disaster loans permeate households’ balance sheets.”
Using the results of 55 prior studies on the effects of unemployment insurance generosity on the duration of unemployment spells, Jonathan P. Cohen of Amazon and Peter Ganong of the University of Chicago find that positive and statistically significant findings are 11 times more likely to be published, meaning the literature likely overstates duration elasticities. Correcting for this publication bias lowers the best estimate of the duration elasticity by 37% to 55%. The authors find that the optimal UI replacement rate is 28% of a worker’s previous weekly income, higher than previous research suggesting near-zero optimal rates. Further, they find no significant difference between the effect of increasing benefits for an individual worker (the micro elasticity) and the effect of increasing benefits for all workers (the macro elasticity), indicating that general equilibrium effects are insignificant or cancel out.
"My baseline outlook is that inflation will decline further with the current stance of monetary policy. Should the incoming data continue to show that inflation is moving sustainably toward our 2% goal, it will become appropriate to gradually lower the federal funds rate to prevent monetary policy from becoming overly restrictive on economic activity and employment. But we need to be patient and avoid undermining continued progress on lowering inflation by overreacting to any single data point," says Michelle Bowman, member of the Federal Reserve Board of Governors.
"...There are also risks that the labor market has not been as strong as the payroll data have been indicating, and it appears that the recent rise in unemployment may be exaggerating the degree of cooling in labor markets. The Q4 Quarterly Census of Employment and Wages (QCEW) report suggests that job gains have been consistently overstated in the establishment survey since March of last year, while the household survey unemployment data have become less accurate as response rates have appreciably declined since the pandemic. The rise in the unemployment rate this year largely reflects weaker hiring, as job searchers entering the labor force are taking longer to find work, and layoffs remain low."
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