EconSouth (Third Quarter 2003)

Research Notes and 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 “Publications” section of the Atlanta Fed’s World Wide Web site.

Finding the best employers for women
Popular magazines such as Fortune and Working Mother often attempt to identify the best employers for women. Government agencies, including the Equal Employment Opportunity Commission (EEOC) and the Office of Federal Contract Compliance, also provide awards to employers that excel in their diversity efforts. Employers usually welcome these forms of recognition, and job seekers and employees rely on these reports and awards to choose employers.

Authors Mary E. Graham and Julie Hotchkiss find, however, that some commonly used measures of “best” employers — in particular “best employers for women” — appear flawed. Most ranking criteria heavily consider only employer efforts in the EEO area. The EEO Index proposed in this working paper considers actual employment outcomes such as the pay, hiring, job placement, promotion and retention of women employees.

The index comprises multiple measures of employers’ human resource management outcomes and is designed to reflect employers’ systemic EEO efforts. The index is applied to industry data from the Current Population Survey (from the Bureau of Labor Statistics), and the tenets of total quality management theory are used to interpret the results. Graham and Hotchkiss find that the mining/construction industry provides a relatively inhospitable climate for women in the form, primarily, of a high degree of gender-related occupational segregation. The financial industry demonstrated the overall greatest gains for women during the 1990s.

Working Paper 2003-11
July 2003

Comparing economic forecasts
If economic forecasts are to be used for decision making, then being able to evaluate their accuracy is essential. Assessing accuracy using single variables from a forecast is acceptable as a first pass, but this approach has inherent problems. An article by Andy Bauer, Robert A. Eisenbeis, Daniel F. Waggoner and Tao Zha addresses some of these problems by evaluating and comparing the general accuracy of a set of multivariate forecasts over time.

Using the methodology developed in an earlier article, the authors compare the economic forecasts in the Blue Chip Economic Indicators Survey. The survey, published monthly since 1977, contains forecasts of many macroeconomic variables over a relatively long time span. The forecasters are a mix of economists from major investment banks, corporations, consulting firms and academic institutions, many of whom have participated in the survey for several years. The survey thus provides a useful set of forecasts to explore the methodologies and to investigate several aspects of forecast performance over time.

The methodology assigns each forecast a composite score based on the standard theory of probability and statistics. This single number is easy to interpret and can be used to compare forecasts even if the number of variables being forecast, or their definitions, changes over time.

The analysis shows that the Blue Chip Consensus Forecast, which is the average of the individual forecasts, performs better than any individual forecaster although several forecasters performed almost as well as the consensus.

Economic Review
Second Quarter 2003

Dollar Index Chart

The dollar continued its decline in the second quarter of 2003 against the 15 major currencies tracked by the Atlanta Fed. The drop in June was the dollar’s eighth consecutive monthly decline. In April decreases were registered in all subindexes except the Pacific subindex; the most notable decline was a 2.2 percent drop in the Americas subindex. All subindexes fell in May. The June index value of 118.4 was its lowest reading since January 2000, and all subindexes registered decreases except the Pacific subindex.

Note: For more detailed, monthly updates and historical data on the dollar index, see the Atlanta Fed’s World Wide Web site at

Are TIPS really “tax disadvantaged”?
In 1997 the U.S. Treasury introduced TIPS — inflation-protected (or indexed) securities — with much promotional fanfare. Despite the Treasury’s educational and promotional efforts aimed at TIPS, and TIPS’ well-established benefit as an inflation hedge, many finance professionals question the appeal of TIPS to a wide audience. Some advisers, in fact, recommend holding TIPS only in tax-deferred accounts.

One reason to question whether there is a broad demand for TIPS is the somewhat unique tax treatment placed on them. Taxes must be paid annually on any accrued increase in principal caused by inflation, even when this gain is unrealized. Because of this treatment, several leading authorities in the field characterize TIPS as “tax disadvantaged.”

Authors Scott E. Hein and Jeffrey M. Mercer reconsider this notion. The analysis suggests that TIPS are no more tax disadvantaged than conventional Treasury debt. The authors argue that the annual taxation of the accretion of pr incipal is necessary to make the overall taxation of TIPS comparable to conventional Treasury securities in an inflationary environment.

Hein and Mercer also show empirically that, consistent with their argument, a sizable proportion of outstanding TIPS have higher expected after-tax yields than their conventional Treasury counterparts.

An important implication of the study is that, contrary to common belief and guidance, TIPS should appeal to a larger audience than tax-exempt investors only.

Working Paper 2003-9
July 2003

Examining the H-1B visa program and its effects
Employment in the information technology (IT) field rose rapidly during the late 1990s. Many IT employees are foreign born and are working in the United States with H-1B visas — temporary nonimmigrant visas issued for terms of up to six years. Critics of the H-1B program contend that it reduces job opportunities and wages for native workers. The programs’ supporters argue that H-1B workers — who typically have at least a bachelor’s degree in a specialty such as computer programming — help address a shortage of skilled native workers and fill positions that would otherwise go vacant.

An article by Madeline Zavodny examines whether the H-1B visa program negatively affects IT workers’ wages. The author uses data on labor condition applications (LCAs) filed with the U.S. Department of Labor to investigate whether the number of H-1B workers in an area, relative to the total number of IT workers in that area, is negatively associated with the level of and change in average IT wages and the unemployment rate among IT workers in that area.

The results provide little support for claims that the program has a negative impact on wages. However, some results do suggest a positive relationship between the number of LCA applications and the unemployment rate a year later. The failure to find an adverse wage effect does not necessarily indicate that H-1B workers do not depress wages but perhaps signals that any effect is difficult to find, as previous studies concluded.

Economic Review
Third Quarter 2003

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