EconSouth (First Quarter 2002)

Research Notes & News highlights recently published research as well as other news from the Federal Reserve Bank of Atlanta. For complete text of summarized articles and publications, see the links below.

How does immigration affect productivity?

The growing influx of immigrants into the United States has prompted concerns about potential negative effects on native workers, especially the less skilled. Such concerns have not been borne out by many studies of the effect of immigration on wages. However, the typical theoretical negative effect of immigration flows on wages may be offset by changes in other aspects of the economy, including output mix, productivity and capital.

In a recent article, Myriam Quispe-Agnoli and Madeline Zavodny examine the relationship between immigration and three factors — output mix, labor productivity and capital — in the skilled and unskilled sectors in the U.S. manufacturing sector at the state level. The authors develop a simple two-sector model of the effect of immigration on these three factors and then test the model’s predictions using data from the 1982 and 1992 Census of Manufactures and other sources.

The results indicate that changes in labor supply induced by immigration caused labor productivity in both the low- and high-skilled sectors to increase more slowly in states that attracted a larger share of immigrants during the 1980s than in other states. This slower growth may result from the gradual assimilation process many immigrants undergo as they acquire language skills and familiarity with U.S. institutions, Quispe-Agnoli and Zavodny believe, and they call for further study of immigration’s longer-term effects on productivity.

Economic Review
First Quarter 2002

Reforming deposit insurance and FDICIA

Current discussions about deposit insurance reform center on issues such as the size of insurance premiums, the size of the fund and the size of the coverage limits — all issues that reflect a concern with how to allocate the losses arising from bank failures. Authors Robert A. Eisenbeis and Larry D. Wall argue that such issues, while important, do not affect the performance of the deposit insurance system nor should they be the focus of deposit insurance reform. They suggest that reform efforts should be directed toward strengthening the incentives to enforce the least cost resolution provisions of the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA).

Eisenbeis and Wall make the case that the large losses the FDIC has borne with some bank failures were due to supervisory forbearance. They suggest that a useful step forward would be to carry out FDICIA’s mandate to develop and implement market value–type disclosures of the value of banks’ assets and liabilities. Increasing the transparency of bank risk taking, as academics have long argued, would improve regulators’ ability to monitor bank risk exposure.

These reforms, combined with a different approach to risk-based premiums and measures to strengthen market discipline, such as expanded use of subordinated debt, merit further consideration as potential partial solutions to the problem of implementing FDICIA.

Economic Review
First Quarter 2002

ATLANTA FED DOLLAR INDEX
Dollar Index Chart

The dollar continued its rise in October 2001 against the 15 major currencies tracked by the Atlanta Fed. Gains were registered on all subindexes except the Americas subindex, which was unchanged. In November, a decline against the Pacific-excluding-Japan subindex was offset by gains versus the European and other subindexes. The dollar rose again in December as a result of gains versus the Pacific and Pacific-excluding-Japan subindexes although the Americas and European subindexes registered declines.

Note: For more detailed, monthly updates and historical data on the dollar index, see the Atlanta Fed’s World Wide Web site at www.frbatlanta.org/econ_rd/dol_index/di_index.cfm.

Race, computers and online shopping

The issue of whether the United States faces a “digital divide” — whether minorities and other socioeconomically disadvantaged groups have less access to computers and the Internet than whites and middle- and upper-income groups do — has received considerable attention from policymakers. Investigating the extent, causes and consequences of a digital divide is important because of the rising use of computers and the Internet in workplaces, schools and homes. In addition, there is widespread concern that inequalities in access and usage may limit opportunities for employment, education and political participation among certain demographic groups.

In a recent working paper, Hiroshi Ono and Madeline Zavodny examine racial and ethnic differences in computer ownership and Internet usage. They focus on online shopping, the fastest-growing segment of Internet usage in the United States, because few studies have examined racial and ethnic differences in e-commerce behavior. The authors find that African Americans and Hispanics are less likely to own or use a computer than are non-Hispanic whites but are not less likely to shop online. Indeed, African Americans appear to shop online more frequently and to spend more than non-Hispanic whites do.

Ono and Zavodny write that one possible explanation for this finding is that, as shown in previous research, minorities may experience price discrimination in face-to-face retail transactions. Because Internet transactions are race-blind, minorities may shop online more frequently and spend more than whites. Indeed, recent research suggests that minorities and whites who buy a car over the Internet pay similar prices, whereas minorities pay more at dealerships than whites do, on average.

WORKING PAPER 2002-01
JANUARY 2002

Atlanta Fed co-sponsors conference on technology, growth and the labor market

The impact of technology on the U.S. economy is a hotly debated topic. Key questions include whether the United States has transitioned to a “new economy” with fundamentally different economic principles and how information technology affects workers and their families.

To offer a perspective on these issues, the Federal Reserve Bank of Atlanta and the Georgia State University Andrew Young School of Policy Studies sponsored the conference Technology, Growth, and the Labor Market in January 2002. Research discussed at the conference included papers and commentaries led by leading experts on a range of issues related to the impact of technology on economic growth and the labor market, including the role of technology in the “new economy,” macroeconomic and microeconomic implications of technological change, and the effects of technology on worker productivity.

As a follow-up to the conference, several of the papers presented will be published in the Atlanta Fed’s third quarter 2002 Economic Review. For more information about the conference agenda, visit the bank’s Web site at http://www.frbatlanta.org/news/news_newsrouter.cfm?news_type=CONFERENCES.

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