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This edition was written by Elijah Asdourian, Georgia Nabors, Lorae Stojanovic, and Louise Sheiner.
Using data on home prices, test scores, and school bond authorization referenda, Barbara Biasi of Yale, Julien M. Lafortune of the Public Policy Institute of California, and David Schönholzer of Stockholm University find that on average, capital investment in schools increases test scores and nearby home prices, although this effect varies based on the kind of school improvement project that is funded. Investment in school infrastructure and student health and safety increases test scores but does not change house prices. Funding for athletic amenities, new land, and school buses results in higher home prices but does not impact test scores. Spending on STEM materials and larger classrooms boosts both house prices and test scores. School capital investment has a larger impact in school districts with more low-income students and minorities. The authors conclude that increasing school investment in disadvantaged areas and financing projects that impact learning could narrow the achievement gap between districts with low and high socioeconomic status by 25%.
The relationship between the unemployment rate and the job vacancy rate—the Beveridge curve—changed considerably during the pandemic. In particular, the job vacancy rate associated with a given unemployment rate was much higher at the end of 2022 than it was prior to the pandemic. Using cross-state data, Gene Kindberg-Hanlon and Michael Girard of the International Monetary Fund find that lower immigration, higher excess mortality, and declining participation among older workers were associated with large upward shifts in the Beveridge curve. Combined, these factors contributed to a labor force shortfall of 1.1%. The authors posit that this reduction in available workers intensified competition for employees, inducing many individuals who already had jobs to seek better terms of employment. These on-the-job searchers competed with unemployed workers to fill vacancies, slowing the rate that the unemployed matched with available positions.
Nearly half of all manufactured goods in the U.S. were intermediated by wholesalers in 2012, up from just under a third 20 years earlier. Some 70% of this growth was driven by the largest 1% of wholesalers, leading to an increase in market power and higher markups. Using data on international trade, domestic shipping, and the manufacturing sector from 1992 to 2012, Sharat Ganapati of Georgetown finds that large wholesalers benefit consumers in the long run. As wholesalers grow, they take advantage of larger distribution networks, lower their operating costs, and increase their markups. Ganapati finds that, despite facing increased markups, consumers benefit from the recent concentration of the manufactured goods market because they gain access to globally sourced products of increasing quality when wholesalers operate at larger scale.
“When the time is right to begin lowering rates, I believe [they] can and should be lowered methodically and carefully. In many previous cycles, which began after shocks to the economy either threatened or caused a recession, the FOMC cut rates reactively and did so quickly and often by large amounts. This cycle, however, with economic activity and labor markets in good shape and inflation coming down gradually to 2%, I see no reason to move as quickly or cut as rapidly as in the past. The healthy state of the economy provides the flexibility to lower the (nominal) policy rate to keep the real policy rate at an appropriate level of tightness. But…the timing and number of rate cuts will be driven by the incoming data,” says Christopher Waller, member of the Federal Reserve Board of Governors.
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