Macro Roundup

Will review EPI report when it is released, "...A forthcoming report by the Economic Policy Institute (epi), a left-leaning think-tank, scrutinises how much bosses at the 350 biggest American firms by revenue actually made once stocks and options were vested and exercised (as opposed to their notional values at the time they were granted). Lawrence Mishel of epi calculates that from 1978 to 2019 the average “realised” compensation swelled nearly thirteen-fold in inflation-adjusted terms, outpacing the stockmarket (see chart 1). It shot up by 14% in 2019 alone..... A fresh analysis by Equilar, commissioned by Calpers, a big Californian public pension fund, identifies similar trends. It looked at the past five years of realised ceo pay for most firms in the Russell 3000 and compared this with the companies’ total returns. The bosses in the top pay quartile made twelve times what those in the bottom quartile did, but produced financial returns only twice as good. The bosses in the second-lowest pay quartile made nearly three times as much as those in the bottom quartile, even though their firms’ total returns were actually worse. “There is no evidence that boards can tell in advance who is a talented ceo,” sums up Simiso Nzima of Calpers….”

“…As a cosmologist, I can say that if we retracted all the papers in cosmology that we felt were misrepresented by journalists, there would hardly be any papers left….”

Lawrence Krauss, "The Ideological Corruption of Science,"Wall Street Journal, July 12, 2020, https://www.wsj.com/articles/the-ideological-corruption-of-science-11594572501

Holman W. Jenkins, Jr., "How to Show That Black Lives Really Matter,"Wall Street Journal, July 10, 2020, https://www.wsj.com/articles/how-to-show-that-black-lives-really-matter-11594417916

NBER finds that college graduates who entered the labor force during/after the Great Recession have seen lower employment rates and wages, but that in terms of wages scarring eventually fades by the workers early 30s; however the workers employment rates seems to be permanently affected.

However the paper also (more interestingly) a dramatic and ongoing negative break in employment rates (3 or 4 points lower versus what it would be under previous trend) for new college grads starting pre-crisis in 2005. “…Starting with those who entered the labor market around 2005, each successive cohort has had lower employment rates, relative to older workers in the same labor market, than those before. These cohort effects layer on to other changes in the labor market that are common to workers of different ages. During the Great Recession, overall employment rates were falling, but the employment rates of new entrants fell by more than did those of cohorts already established in the labor market. This is perhaps unsurprising; 100% of new graduates had to find jobs in a historically weak labor market, where most older workers were able to remain in their old jobs. What is more surprising is that the decline in employment rates continued after the recession ended, not just for those who entered during it but for successive cohorts as well….”

To me this is consistent with the lower value of a college degree from more marginal college graduates, he doesn’t control for institutional selectivity.

“….I study cohort patterns in the labor market outcomes of recent college graduates, examining changes surrounding the Great Recession. Recession entrants have lower wages and employment than those of earlier cohorts; more recent cohorts’ employment is even lower, but the newest entrants’ wages have risen. I relate these changes to "scarring" effects of initial conditions. I demonstrate that adverse early conditions permanently reduce new entrants’ employment probabilities. I also replicate earlier results of medium-term scarring effects on wages that fade out by the early 30s. But scarring cannot account for the employment collapse for recent cohorts. There was a dramatic negative structural break in college graduates’ employment rates, beginning around the 2005 entry cohort, that shows no sign of abating…. First, employment rates fell precipitously. The cohort that entered the labor market in 2010 has had an employment rate that, averaged over its experience to date, is two percentage points lower than what would have been expected based on prior cohorts’ age profiles and the state of the economy. The decline began with cohorts that started their careers before the Great Recession, and has only continued for more recent cohorts.Employment rates for 2015 entrants, who faced strong labor markets for the first four years of their careers, are three percentage points lower than projections based on pre-recession trends. Although more recent cohorts have only a few years of data, each is thus far posting lower employment rates than the one before. Second, wages for those who are employed show a different pattern. The cohort that entered the labor market in 2009 has lower wages than those who entered earlier, by about two percent. However, there were no further declines for post-recession entrants - in my main specifications they returned to the pre-recession trend, though this is not entirely robust. For the most recent entrants, we have only a few years of very early career earnings, but thus far wages are several percent higher than the pre-recession trend. Third, both employment and wages are subject to scarring effects of early career conditions. The form of scarring is quite different for the two outcomes, however. I replicate past findings that those who face high unemployment rates at the start of their careers have lower wages through their first several years in the labor market, but that the scars gradually fade and by the tenth year the effects of initial conditions have faded. Scarring effects on employment, by contrast, are permanent: Cohorts that face high unemployment when they enter the labor market have statistically and substantively lower employment rates throughout their careers, not just at the beginning. Fourth, these scarring effects, while quantitatively important,are not large enough to account for the employment outcomes of the Great Recession entrants. Projections based on earlier business cycles account for only about half of the observed downturn in employment rates for the 2009-2012 cohorts. Moreover, these cannot help explain poor outcomes for the most recent entrants, who encountered historically low unemployment rates at the outset of their careers (at least until the coronavirus pandemic in 2020, which is outside the scope of my data). Again, the evidence for wages is different: Early career scarring effects account for all of the decline in wages for Great Recession entrants, and subsequent cohorts have earned higher wages than past patterns would suggest. Last, there was a dramatic structural break in the employment rate of young college graduates, beginning with the cohorts that entered the labor market around 2005, well before the Great Recession. Although employment rates rose dramatically following the Great Recession for incumbent workers, new entrants did not share in this improvement. The new, dramatically negative trend shows no sign of letting up in the most recent data. The most recent cohorts have relative employment rates three to four percentage points lower than what one would have anticipated based on the pre-2005 trend…. Something dramatic has happened to the employment prospects of recent college graduates. Starting with those who entered the labor market around 2005, each successive cohort has had lower employment rates, relative to older workers in the same labor market, than those before. These cohort effects layer on to other changes in the labor market that are common to workers of different ages. During the Great Recession, overall employment rates were falling, but the employment rates of new entrants fell by more than did those of cohorts already established in the labor market. This is perhaps unsurprising; 100% of new graduates had to find jobs in a historically weak labor market, where most older workers were able to remain in their old jobs. What is more surprising is that the decline in employment rates continued after the recession ended, not just for those who entered during it but for successive cohorts as well….”

“…We quantitatively evaluate the role of supply and demand of safe assets in determining neutral interest rates. …First, we construct a measure of global net supply of safe assets available to the private sector: the supply of sovereign safe assets net of foreign government holdings and assets never traded in secondary markets. In our benchmark series, we focus on U.S. Treasury securities because of the central role of the U.S. dollar in the global trade, financial, and monetary systems…The net supply of U.S. Treasury securities (red line in Figure 1) correlates well with realized safe real interest rates, especially up to 2008. This correlation (not shown before) is consistent with the view that a higher demand for safe assets during the mid-1990s-2008 period was not met by a corresponding increase in their supply, thus pushing down neutral interest rates….We find that the net supply of safe assets is an important driver of neutral rates. We estimate that changes in the net supply of safe assets account for an average of 20% of the variance of neutral rates across countries. Moreover, net safe assets contributed to the path of neutral rates in important periods of our sample: the first wave of decline in the 1970s, a rebound in the early 1980s, and the steady decline during the 2000s. Since 2008 the increase in net safe assets has prevented neutral rates from declining further because of other factors, especially demographics. These results are consistent with the idea that while larger debts from advanced countries have boosted the supply of safe assets after 2008, higher demand for these assets due to, for instance, an older population, has pushed down neutral rates. We also find that most of the determinants of neutral rates explored in this paper help explain not only the time series of these rates, but also their co-movement…. Using an empirical cross-country state-space model, we find that the net supply of sovereign safe assets available to the private sector in secondary markets is an important driver of neutral rates for 11 advanced economies in the period 1970-2018. We also find that the global accumulation of international reserves in sovereign safe assets since the 1990s (the global savings glut) lowered the net supply of these assets and, thus reduced neutral rates by up to 50 basis points in our sample….”

Thiago Ferreira and Samer Shousha, “Scarcity of Safe Assets and Global Neutral Interest Rates,” Federal Reserve Board, July 2020, https://www.federalreserve.gov/econres/ifdp/files/ifdp1293.pdf