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This edition was written by Sarah Ahmad, Alex Conner, Georgia Nabors, and David Wessel.
John Eric Humphries of Yale and co-authors examine a free, non-means tested Pre-K program in New Haven, Conn. that selected students via random lottery. They find that enrolling a child in this universal Pre-K program increased parents’ earnings by 21.7%, an effect that persisted for six years. Universal Pre-K enrollment caused parents to work 12.8 additional hours per week during Pre-K, but this effect subsided thereafter. The long-run increase in earnings is thus likely attributable to gains from additional work experience or job continuity rather than a rise in labor supply. However, the authors find that universal Pre-K had limited impacts on children’s test scores, academic progression, or attendance from kindergarten through eighth grade. They conclude that each dollar spent by the government on universal Pre-K programs produces a $5.51 benefit for families, driven almost entirely by the earnings gains enjoyed by parents rather than benefits to students.
Robert Breunig of Australian National University and co-authors assess labor market outcomes across eight countries during the onset of the pandemic in 2020. Countries that suffered more cases, including the U.S., France, Italy, and Spain, saw much larger shares of the population out of work in the first months of the pandemic. The share of people out of work also rose sharply in Australia where the initial spread was limited but social distancing measures were strict. The authors find that labor market disruptions were relatively minimal in South Korea and Sweden because the spread of the virus was better contained without stringent distancing policies. Taken together, the authors argue that stringent distancing can explain the fall in employment in the absence of high cases. But South Korea and Sweden are the exception; the authors conclude that falling labor demand explains most of the employment drop across countries and that the role of precautionary exits from the labor force is small. The authors show that policy determines where outflows from employment go. In the U.S., people left jobs to claim expanded unemployment insurance benefits. In Europe, people were “absent from work” but stayed on payroll through wage subsidies. Finally, the authors find that young and middle-educated workers suffered the largest employment declines because they were less likely to have jobs that could be done through telework.
The U.S. experienced a post-pandemic surge in immigration in 2021, especially in unauthorized entries which increased from 17,000 in 2020 to 2.2 million in 2023. Using administrative data on border encounters, immigration court records, and household consumption data, Anton Cheremukhin of the Federal Reserve Bank of Dallas and co-authors find that post-pandemic immigrants are (1) more likely to have lower education levels and work in lower-skill jobs compared to native workers and (2) more likely to consume a larger fraction of their income and have lower wealth than native households. Incorporating these facts into a model, the authors find the post-pandemic immigration surge had little effect on inflation, as the effect of the increase in labor supply on prices was offset by the increase in aggregate demand from immigrants’ consumption.
"One way such a scenario could play out would be if aggregate demand proves stronger than most forecasts currently assume. The ongoing resilience in consumption and gross domestic product (GDP) hint at the potential for unexpectedly strong demand, as do recent upward revisions to data on gross domestic income and the savings rate.
Financial conditions could also boost demand beyond what the economy can sustain. As I mentioned earlier, the fed funds target influences economic activity only indirectly, because most households and businesses pay longer-term interest rates that also reflect their creditworthiness. Financial conditions have eased notably from a year ago. Mortgage rates have dropped, equity prices are near all-time highs, and credit spreads are near historic lows. Even if the current assessment of demand is on target, an unwarranted further easing in financial conditions could boost spending and push aggregate demand out of balance with supply.
These risks suggest the FOMC should not rush to reduce the fed funds target to a 'normal' or 'neutral' level but rather should proceed gradually while monitoring the behavior of financial conditions, consumption, wages and prices.”
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