EconSouth (Fourth Quarter 2004)

Research Notes and News

Research Notes and News highlights recently published research as well as other news from the Federal Reserve Bank of Atlanta.

Are part-time workers
marginalized in the workplace?

Even though part-time jobs offer lower pay, fewer benefits, and less stability, voluntary part-time employment among disabled workers has increased over the past 20 years even as part-time work has declined among nondisabled workers. Does this trend signal that part-time work has become more attractive to disabled workers, or does it mean that disabled workers are being pushed to the fringe in the workforce?

In a recent article, Julie Hotchkiss attempts to answer these questions by looking at the part-time employment experience of disabled workers since 1984. Using data from the Current Population Survey, the author first examines how the incidence and nature of part-time jobs among workers with disabilities has changed over time compared with the experiences of nondisabled workers. Second, she analyzes U.S. Labor Department job descriptions for a broad range of occupations to see how the qualitative nature of jobs has changed over time.

Her analysis indicates that disabled workers are not being marginalized and are finding part-time employment more attractive. One explanation for the latter finding is that employers are increasingly accommodating the needs of disabled workers, offering them part-time jobs that would be available only on a full-time basis to nondisabled workers. Since the data show that the quality of part-time jobs held by disabled workers has not become relatively more attractive, a second, more likely explanation is that policy changes such as extended Medicaid and more generous Social Security Disability Insurance benefits have made part-time employment more financially attractive to disabled workers.
Economic Review
Third Quarter 2004

Seeking monetary explanations
for the Great Depression

Seventy years after the Great Depression, economists still debate the causes of this economic catastrophe. Two leading explanations are distinguished by whether or not the Federal Reserve’s monetary policies are perceived as being chiefly responsible for propagating and magnifying the initial contraction into a depression.

In a recent article, Paul Evans, Iftekhar Hasan, and Ellis W. Tallman survey recent modeling efforts and empirical work that examine aggregate explanations for the Great Depression from both the extensive literature using vector autoregression techniques and the more recent literature using dynamic stochastic general equilibrium modeling. Neither of these approaches has yielded a consensus about the causes of the depression.

Data alone are insufficient to distinguish the precise role of monetary policy during that period. The modeling strategies impose restrictions that help isolate the meaningful economic interactions in the data. In each literature, the ways in which the respective models identify monetary policy can differ substantially, and these differences are why monetary policy shocks may or may not explain much of the output contraction. Also, these modeling approaches vary in their ability to capture important institutional features of the banking and financial system.

The authors believe that the search for one conclusive empirical study of the Great Depression is futile. The most promising path for future research models, they conclude, will entail a sharper focus on the financial sector, a refined specification of how monetary policy affects the real economy, and further methods to incorporate elements of labor market frictions.
Economic Review
Third Quarter 2004

How many new jobs does
the labor force require?

To keep unemployment in check, job growth must match or outpace labor force growth. Author Julie Hotchkiss explores the effects of declining U.S. labor force participation rates on the levels of job creation needed to stabilize the unemployment rate. She concludes that the usual estimates of job creation needed to achieve a stable unemployment rate are too high.

Whereas the usual estimate of necessary job creation is about 150,000 jobs per month, the author notes that only 98,000 jobs need to be created each month to keep unemployment from rising. The smaller figure stems from declining rates of labor force participation partially caused by the aging U.S. population. This calculation explains why the average monthly creation of 107,000 jobs between June 2003 and August 2004 was more than sufficient to absorb the growing labor force and why the unemployment rate declined fairly steadily during this period.

However, the number of jobs that need to be created to absorb the labor force is not necessarily the same number of jobs that need to be created to sustain desired growth in the gross domestic product. As the U.S. population ages, labor force growth will continue to decline, raising concerns about how the United States will fuel a desirable level of economic growth. The author outlines several methods of increasing labor force participation, including employing more elderly workers, increasing immigration, and outsourcing production.
Working Paper 2004-25
October 2004

Fussing and fuming over
Fannie Mae and Freddie Mac

Fannie Mae and Freddie Mac are the second- and third-largest U.S. companies and play a central role in housing finance markets. Both companies are considered government-sponsored enterprises (GSEs) because they maintain federal charters that confer a number of rights and responsibilities on them. The largest benefit to Fannie Mae and Freddie Mac of their GSE status is the financial market’s perception that the federal government backs their financial obligations even though it explicitly does not.

Authors W. Scott Frame and Lawrence J. White describe the importance of this market perception and then examine five related research and public policy issues. These issues include the efficiency implications of Fannie Mae and Freddie Mac for mortgage markets and the macroeconomy as well as the federal government’s safety-and-soundness supervision of the companies and the systemic risk that these GSEs could pose to the U.S. economy.

Offering ideas for policy improvements, Frame and White suggest that Fannie Mae and Freddie Mac become privately owned companies with no special privileges. The authors argue that this approach would have only a modest effect on residential mortgage interest rates (a 20–25 basis point increase). If privatization is not feasible, the authors’ research suggests that public officials should disavow any public backing for Fannie Mae or Freddie Mac, force the companies to increasingly serve low- and moderate-income borrowers, and strengthen their safety-and-soundness oversight.
Working Paper 2004-26
October 2004


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