Issue Brief posted May 8, 2013
Research Review: Zero Lower Bound Interest Rates
In monetary policy, zero is an important number. Nominal interbank interest rates cannot normally sink below zero—that would mean one bank was paying the other to borrow its money. This is known as “the zero lower bound.” For central banks such as the Fed, the zero lower bound is a constraint on their ability to affect markets by moving key interest rates. In addition,…
Issue Brief posted May 3, 2013
Heritage Employment Report: Sequester Does Not Shower on Economy in April
The Bureau of Labor Statistics’ April employment report found healthy growth in the labor market in April. Employers added 165,000 net jobs, and the unemployment rate fell slightly to 7.5 percent. While falling short of expectations for a recovery from a deep recession, this would be considered decent growth in normal economic times. However, the improvement in…
Issue Brief posted May 1, 2013
Debt and Growth in a Time of Controversy
The weight of the evidence indicates that high debt slows growth, but there is no magic threshold above which any country at any time will experience slower growth. This truth has been illustrated in the recent controversy around “Growth in a Time of Debt,” an academic paper by Carmen Reinhart and Kenneth Rogoff.
Reinhart, Rogoff, and Rebuttals
“Growth in a Time of…
Issue Brief posted April 5, 2013
Heritage Employment Report: March Job Market Goes Out Like a Lamb
The Bureau of Labor Statistics (BLS) jobs report for March had some silver linings, but overall the report was disappointing. Employers added a net of only 88,000 new jobs, and labor force participation dropped sharply. The labor force drop caused the unemployment rate to fall by 0.1 percentage point to 7.6 percent despite the low job gains. However, revisions to the…
Issue Brief posted April 4, 2013
Research Review: Who Creates Jobs? Start-up Firms and New Businesses
Job creation is currently the Holy Grail for Washington policymakers. In order to craft better job policies, it is valuable to understand when, where, and by whom jobs are created. Rigorous data analysis tells us that start-up firms are disproportionate job creators and that new firms tend to appear in cities with smaller incumbent firms.
Policymakers should keep future…
Issue Brief posted March 8, 2013
February Employment Report: Has the Economy Seen Its Shadow?
The Bureau of Labor Statistics’s (BLS) February employment report showed solid labor market growth. Employers added 236,000 net new jobs, and the unemployment rate dropped to 7.7 percent from 7.9 percent. However, the labor market is weaker than the headline numbers suggest.
It remains unclear whether the labor market is improving. One factor that Congress should not…
Issue Brief posted March 5, 2013
Research Review: Spending Cuts Are Better Than Tax Increases
Governments regularly run fiscal deficits and periodically awake to the need to restore balance to their finances. These episodes of “fiscal correction” or “austerity” may emphasize either tax increases or spending cuts. As the United States faces an out-of-control budget deficit and trillions in unfunded promises to future retirees, the question looms large: Tax more,…
Issue Brief posted February 22, 2013
High Debt Is a Real Drag
Three teams of economists have separately shown that high government debt has a negative effect on long-term economic growth. When government debt grows, private investment shrinks, lowering future growth and future wages.
Estimates across advanced economies show that debt drag reaches large and statistically significant levels as debt grows, with the worst effects…
Issue Brief posted February 5, 2013
Questions Raised by the CBO Report
As expected, the Congressional Budget Office (CBO) Budget and Economic Outlook released today continued the pattern of predicting a strong recovery just two years away. Although CBO’s economic approach is typical among forecasters and historically unbiased, the economy’s persistent failure to launch as predicted raises questions. Are current conditions of persistent…
Issue Brief posted February 1, 2013
January Jobs Report: No Unemployment Thaw in Sight
Unemployment increased to 7.9 percent in January. While the number of Americans looking for work remains above 12 million, the unemployment rate remains at its October level. The long-awaited labor market recovery remained as distant as ever in January.
Factors are holding back employment growth that economic forecasters have not incorporated into their models. One such…
Issue Brief posted January 8, 2013
Effective Marginal Tax Rates for Low-Income Workers Are High
The Congressional Budget Office (CBO) released a report on effective marginal tax rates for low-income workers.
An effective marginal tax rate as defined by the CBO is the change in taxes and change in government benefits associated with increases in income. Because tax rates and government benefits change as income changes, an individual’s effective marginal tax rate…
Issue Brief posted October 5, 2012
Heritage Employment Report: September Job Creation Still Slow
The Bureau of Labor Statistics (BLS) September payroll survey finds that employers added a net 114,000 new jobs, continuing the trend of slow employment growth during the recovery. The substantially divergent job growth reported in the household survey and the associated drop in the unemployment rate is inconsistent with other economic indicators and may represent…
Issue Brief posted October 3, 2012
Why the Slow Economic Recovery?
The slow economic recovery since 2009 has not hewn closely to the patterns set by previous recoveries. One explanation that matches the key facts of this recovery-less recovery is that the fixed costs of production have risen. Higher regulation, tight credit, and other costs affect small, start-up businesses more than incumbents. Since start-ups normally create all of the…
Backgrounder posted September 18, 2012
How Contagious Is Europe’s Economic Crisis?
Abstract: Europe’s economic problems are already affecting the U.S. economy. An expanding European crisis could affect the U.S. through the financial sector, reduced demand for U.S. exports, disruption of global supply chains, and political disruption in Europe. The U.S. can best help Europe by pursuing sound economic policies at home, starting with pulling back from the…