Inflation Looks Poised to Bounce Back Big Time: Eco Research Wrap
If you’ve been waiting for the U.S. unemployment-inflation relationship to reassert itself, 2018 may be yous.
(Bloomberg) -- If you’ve been waiting for the U.S. unemployment-inflation relationship to reassert itself, 2018 may be the year for you.
Not only are recent inflation data showing signs of a pickup, but analysts say that price indexes that don’t usually move in response to the business cycle are poised for a snapback. Deutsche Bank’s note on that topic leads this week’s economic research wrap, which also looks at studies on the decline in the U.S. employment-to-population ratio, sunshine and the flu season, the tension between good employees and good managers, and the outlook for Asian economic growth. Check this column each Tuesday for the latest in economic research from around the world.
The Price is Right
Acyclical Inflation: What Is Down Must Come Up?
Published Feb. 16
Available to Deutsche Bank subscribers
So-called acyclical inflation may be picking up at long last. As a refresher, acyclical prices don’t budge much as unemployment falls, and you can read more on what indexes qualify here. The measures have been low in recent years, holding down overall inflationary pressures and making it harder for the U.S. Federal Reserve to hit its 2 percent inflation goal. But we may be at an inflection point, Deutsche Bank economists write in a research note. A weaker dollar should help boost import price inflation, they write, and health care inflation has been showing a strong uptick.
The analysts point out that unemployment needs to be very low – less than 4 percent in today’s economy – to boost inflation when acyclical inflation is depressed. That’s relevant, since joblessness is already down to 4.1 percent and prices have yet to pick up much. The analysts say that a 3.8 percent jobless rate is probably needed these days, supporting the idea that the Phillips Curve unemployment-price relationship is flatter than once thought – but not dead.
Weekly Demo(graphic): America’s missing workers
Explaining the Decline in the U.S. Employment-to-Population Ratio: A Review of the Evidence
Published February 2018
Available on the NBER website
America’s employment-to-population ratio fell by 4.5 points to 59.7 percent between 1999 and 2016, and much of that decline can be attributed to demand-related drivers, based on a new review of the literature by Katharine Abraham and Melissa Kearney at the University of Maryland. They survey the economic literature and try to quantify some of the biggest factors weighing employment down, as charted above. Still, it’s tough for them to put numbers on a few potential contributing factors: those include the role that opioids and video games have had in reducing labor supply, and how decreased geographic mobility and increased occupational licensing might be playing into the picture.
Soak up the sun
Sunlight and Protection Against Influenza
Published February 2018
Available on the NBER website
Want to avoid the flu? Go play in the sunshine, new findings published in a National Bureau of Economic Research working paper suggest. A 10 percent increase in sunlight in late summer and early fall decreases a state’s flu index in September by 3 points on a 10-point scale, based on the findings. Sun exposure in the late summer and early fall was most important, and the effect was probably driven in large part by vitamin D, which people produce naturally when they’re exposed to the sun. The researchers use CDC flu data from October 2008, state-level population density data from Census and county-level sunlight data for 2003 to 2011 from the North America Land Data Assimilation System.
Good employee vs. good boss
Promotions and the Peter Principle
Published February 2018
Available on the NBER website
If you’ve ever looked at a boss and wondered, “how did you get this job?’’ – here’s a theory. Companies promote workers to managerial roles because of their on-the-job performance, not because of their management chops, which can result in less-than-ideal candidates ending up in leadership positions. This seems to be a rational choice, because the chance of becoming a manager motivates workers. “The costs of not promoting the best potential managers are high: firms appear willing to forgo a 30 percent improvement in subordinate performance to achieve better incentives or to avoid costly politicking,” researchers Alan Benson, Kelly Shue and Danielle Li write in their working paper. The researchers look specifically at the sales industry, since performance and incentive plans are both relatively easy to quantify.
Deceleration with Chinese characteristics
The Economic Outlook for East Asia and the Pacific in Six Charts: Strong Growth, Easing Moderately
Published Feb. 14
Available on the World Bank website
East Asia and the Pacific will be a major driver of global growth between 2017 and 2020, accounting for more than a third of all progress. Yet demographic pressures in China and other large economies are going to come to bear after that, weighing on growth in the region. Still, “policies to boost total factor productivity – defined as the portion of gains in output that can’t be explained by increases in the quantity of labor or capital – across the region could partly offset the diminishing returns from capital and the effects of demographic trends,” according to a World Bank blog post.
To contact the editor responsible for this story: Randy Woods at rwoods13@bloomberg.net, Sarah McGregor
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