EXECUTIVE VICE PRESIDENT AND DIRECTOR OF RESEARCH
ROBERT A. EISENBEIS
THOMAS J. CUNNINGHAM
Vice President and
Associate Director of Research
GERALD P. DWYER JR.
Vice President, Financial
ELLIS W. TALLMAN
Vice President, Macropolicy
JOHN C. ROBERTSON
Assistant Vice President, Regional
BOBBIE H. MCCRACKIN
LYNN H. FOLEY
JILL DIBLE AND
Marketing and Circulation
The Economic Review of the Federal Reserve Bank of Atlanta, published quarterly, presents analysis of economic and financial topics relevant to Federal Reserve policy. In a format accessible to the nonspecialist, the publication reflects the work of the Research Department. It is edited, designed, produced, and distributed through the Public Affairs Department.
Views expressed in the Economic Review are not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System.
Material may be reprinted or abstracted if the Economic Review and author are credited.
Please use the WebScriber Service to order free subscriptions and additional copies as well as to receive e-mail notifications when articles are published online. For further information, contact the Public Affairs Department, Federal Reserve Bank of Atlanta, 1000 Peachtree Street, N.E., Atlanta, Georgia 30309-4470 (404.498.8020).
|Social Security Private Accounts: A Risky Proposition?
|Gerald P. Dwyer Jr.
In the ongoing debate over Social Security, private accounts have been recommended as one part of the resolution of the funding difficulties the system faces in coming years. This article discusses what private accounts can and cannot do for individuals who choose to use them and for future Social Security deficits.
Under current proposals, private accounts would give account holders personal ownership rights and could be willed to heirs at death. Most proposals would limit the range of assets that can be held but would permit account owners to determine their investments based on personal risk preferences. To the extent that financial asset returns can be higher than returns on Social Security, private accounts can be more worthwhile for those with a longer time until retirement because any difference in returns can compound over a longer period.
Private accounts carry the risks inherent in holding financial assets, but Social Security carries a real risk of lower benefits in the future. Holders of private accounts would be trading one type of risk for another.
The creation of private accounts can reduce Social Security’s future problems if the reductions in benefits in exchange for deposits in private accounts reflect the initial deposit plus interest earned.
|Buy Foreign While You Can:
The Cheap Dollar and Exchange Rate Pass-Through
|Eduardo J.J. Ganapolsky and Diego Vilán
Despite the dollar’s real depreciation in the past few years, the U.S. trade deficit has continued to increase, with the level of imports reaching record highs. Why has the cheaper dollar not made imports more expensive and exports more attractive and, in turn, reduced the trade deficit?
This article presents evidence on the degree of exchange rate pass-through (ERPT)—the extent to which U.S. domestic import prices have moved in response to changes in the exchange rate—from December 1993 through December 2004. Using monthly data, the authors first decompose domestic import prices to their foreign price and exchange rate components and then test for the presence of ERPT in selected import categories.
According to their analysis, ERPT elasticity has trended downward for the main import categories during the ten-year period. But at the more disaggregated levels, ERPT showed an upward trend for some items during the last months of 2004, especially for capital and consumer goods.
The authors interpret this shift as a sign that some foreign firms may have stopped absorbing exchange rate depreciations as the falling dollar has shaved away their profit margins. To be able to survive, some foreign exporters might begin passing through exchange rate depreciations to domestic import prices, the authors conclude.
|It’s Who You Are and What You Do: Explaining the IT Industry Wage Premium
|Jason DeBacker, Julie Hotchkiss, Melinda Pitts, and John Robertson
The information technology (IT) boom dramatically boosted the rapid growth of the U.S. economy during the 1990s, contributing 1.4 percentage points of the 4.6 percent national average real gross domestic product growth from 1996 to 2000. As the IT boom went bust in 2001, however, the IT sector’s influence on the economy dwindled.
But a lingering effect of the IT boom may still be apparent in the wages of IT workers. This article explores the extent to which variations in wages between IT-producing and non-IT industries can be accounted for by differences in wages paid to IT-related occupations.
Using data for 1996 to 2002 from the Current Population Survey’s Earner Study, the authors study a sample of more than 845,000 U.S. workers aged eighteen to sixty-four. The sample is categorized according to individuals’ primary job and is divided into nine industry groups—three IT-related and six non-IT-related.
The analysis shows that the average wage of IT occupations is greater than for non-IT occupations irrespective of industry. Individual worker characteristics such as years of education may account for some of this wage differential. But even after such characteristics and occupational differences are controlled for, workers in IT-producing industries still enjoy a wage premium over workers in other sectors.