Resiliency of human capital

Ed Glaeser writes about New York City today in the New York Times. Housing prices, as any New Yorker is probably fully aware, haven't fallen as much in NYC as elsewhere, and the city's unemployment rate is still below the national average.

Glaeser attributes this to the bright future that is both caused by as well as expected by New York holders of valuable human capital. Education serves as recession insurance; it also seems to have increased returns in densely populated areas, where social interactions may spur increased innovation.

Divorce and real estate prices

There's nothing like the holidays to accelerate news coverage of divorce! Today it's not celebrity divorce, although apparently J.Lo has something up her sleeve on that front. Rather, the Times reports that divorces are being turned upside-down by the decline in real estate prices.

With huge capital losses on real estate, some couples may find the net economic gains to divorcing have evaporated. These couples must be expecting their assets to rebound in value, of course, or else they feel liquidity constrained. Otherwise, why wait? Presumably labor productivity is if anything lower in a doomed marriage!

How Low Can It Go?

The irony about the nominal federal funds rate being cut to practically zero is that the real rate is still arguably positive, perhaps by a lot, because inflation expectations are probably negative! The Fisher equation shows that i = r + π

In theory, a problem like this could be addressed by a negative nominal interest rate, but could the Fed ever actually get lending banks to pay borrowing banks for funds?

Signal and noise in the job market

I don't know why this is the equilibrium in the economics job market, but employers get upward of 150 applications for one or two tenure-track teaching slots many places. The difficulty of getting any information from picking through them all, in a limited amount of time toward the end of the term, is immense.

No wonder that outcomes in job markets like this can be so random, or that such searches are costly in terms of time and energy for seeker and employer. What a tremendous burden during period of high unemployment such as now!

Education and unemployment

An article in today's New York Times discusses trends in unemployment in New York City. The article begins by stating a pretty unassailable point, that unemployment in the city largely started rising after it had risen elsewhere. Then it discusses the spread of unemployment up the educational spectrum.

The article cites some statistics quoted by Lawrence Mishel, the president of the Economic Policy Institute, that suggest the burden of rising unemployment is higher among the college educated. His numbers are indeed correct: the number of unemployed who are college educated has risen 75% since March 2007, a faster clip than the 62% among all workers 25 and older.

But I think the more appropriate statistics to examine are these groups' unemployment rates. Among the college educated during this period, unemployment has risen from 1.8% to 3.1%, a rise of only 1.3 percentage points. Among all workers 25 and older, unemployment rose form 3.5% to 5.5%, up 2 percentage points. The unemployment rate is the unconditional probability an individual worker will be unemployed, and a smaller rise in that probability suggests greater insulation against recession. The percentage increase in the number of unemployed is a statistic that cannot account for the very different equilibrium frequencies of unemployment among educational groups, which makes it less meaningful.

What form should policy take?

Greg Mankiw thinks monetary policy, if it were able to lower long-term interest rates, might still be able to stimulate private investment. Mankiw also raises the important points that fiscal stimulus will (a) raise the level of public indebtedness and place a heavier tax burden on future generations, and (b) might be more efficiently carried out at the state and local level, where infrastructure investments are typically made during normal circumstances.

Other observers, like Paul Krugman and David Brooks, are arguing more unequivocally for fiscal stimulus through infrastructure investments. Brooks in particular raises the point that state spending on higher education, itself an infrastructure investment, should ideally be targeted given how states typically cut such spending during recessions in order to run balanced budgets.

Much has been written about a deceleration in U.S. educational attainment, although that may mean high school graduation rates rather than college. But if students at the margin could be encouraged through an expansion of state support to complete college degrees, that seems like a very worthy goal with at least three important benefits.

While in school, students would presumably not be looking for work and lowering wages for other workers; their human capital investments would pay off for them in the form of higher wages in the long run; and future tax revenues would be bolstered because of their higher wages and the progressive income tax structure.