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March 1998, Vol. 121,
No. 3
Précis
Capital
and labor
Democracy pays
Wealth and savings
Industrial diversity
Different surveys,
different measures
Précis from past issues
- Capital and labor
-
- The quantity, types, and organization of
capital and labor services determine a Nations
output, according to the Federal Reserve Bank of
Clevelands Economic Trends. The amount
invested in these accounts is affected, in turn, by the
economic environment. "For instance," the
report says, "growth of the capital stock
decelerated significantly during the 1970s, a period of
rampant inflation that magnified tax rates on capital
income and dented private investment incentives."
-
- The last 6 years, however, have witnessed
a more favorable economic environment and a general boom
in investment. The ensuing rise in the value of the
capital stock probably also reflects the better
technology in newer equipment and gains from the better
deployment of existing capital.
-
- In labor services, total hours worked have
nearly doubled over the past 40 years, with only brief
setbacks during recessions. Moreover, an hour of labor in
1995 cannot be directly compared with an hour of work in
the mid-1950s. More education, training, and skills have
made labor services more efficient. Adjusting for these,
according to Economic Trends, "yields a
steeper time profile of hours worked than does the series
on observed total hours." Even allowing for such an
adjustment, the ratio of capital to labor has, with the
exception of the 1970s, increased consistently.
Top
- Democracy pays
-
- In Democracies Pay Higher Wages, a
National Bureau of Economic Research Working Paper, Dani
Rodrik finds "there is a robust and statistically
significant association between the extent of democratic
rights and wages received by workers." Rodrick based
this conclusion on models that controlled for labor
productivity, per capita income levels, consumer prices,
and other variables. The association of wages with
democracya statistic based on indicators of civil
liberties and political rightsremained positive in
all these models.
Top
- Wealth and savings
-
- The national savings rate is critical to
the capital accumulation that drives economic growth,
labor productivity, and living standards. According to
Peter Yoo, writing in the Federal Reserve Bank of St.
Louis National Economic Trends, economists
thus worry because personal savings as a percent of
disposable income have dropped steadily since the early
1980s. In 1997, the savings rate by this measure stood at
less than 4 percent.
-
- Yoo goes on to investigate the effect of
adding changes in the value of households existing
assetsin particular the rise in stock
pricesto our understanding of national savings.
Increases in the value of existing wealth might imply
that "markets believe existing assets will be more
productive in the future, so the increased wealth may
substitute for capital accumulation."
-
- This broader concept of savings, however,
has little impact on the way recent trends in savings
would be viewed. The broader measure of savings, total
change in wealth as a percent of disposable income, is
both higher and more volatile than the personal savings
rate. This is not surprising, given the fluctuations of
stock and other asset prices. What Yoo finds more
important is that the alternative measure also turns out
to show a declining savings rate, despite rising stock
prices.
Top
- Industrial diversity
-
- The fedgazette newspaper published
by the Federal Reserve Bank of Minneapolis, reprinted a
State Industrial Diversity Index developed by Regional
Financial Associates for 199596. On a scale where
1.00 indicates that a State has an industrial structure
identical to that of the Nation, the average State scored
0.61. The States with industrial structures most like the
Nations were Pennsylvania, Illinois, and Missouri
with index scores of 0.83. The District of Columbia and
Nevada least resembled the Nation, with index scores of
0.16 and 0.17, respectively.
Top
- Different surveys, different measures
-
- One of the frustrations of economics is
the significant differences in outcome that is often the
result of seemingly minor change in method. Quite often,
painstaking work is needed to find the sources of these
differences. A good example of this appeared in the Social
Security Bulletin under the title "Why SIPP
[Survey of Income and Program Participation] and CPS
[Current Population Survey] Produce Different Poverty
Measure Among the Elderly." According to the Bulletin,
"In terms of poverty rates, the SIPP
consistently produces lower estimates for all subgroups
and all 4 years considered (1987, 1988, 1990, and 1991).
. . .SIPP not only finds fewer poor people, it also finds
that those counted as poor are on average somewhat better
off than their (more numerous) CPS counterparts."
-
- The two surveys found broadly similar
patterns of income for the elderly: Social Security
benefits are about 40 percent of income; property income,
25 percent; other pensions, 20 percent; and wages, 10
percent. But SIPP counted more recipients for all sources
of income, albeit often in lower amounts. The most
important exception is Social Security benefits and they
are the most important reason SIPP recorded poverty rates
for older Americans that were lower by 2-l/2 to 4
percentage points than those in the CPS. "To
summarize," concluded the Bulletin,
"differences in the reporting of Social Security
benefits seem to be able to account for at least half of
the poverty rate differential among the elderly in SIPP
and CPS."
Top
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