Tag Archives: u.s

The Waiting Game

“The Federal Reserve signaled this past week that it is unlikely to raise short-term interest rates until at least June” (http://blogs.wsj.com/moneybeat/2015/01/30/fed-up-do-rising-rates-matter-after-all/).

This came as a surprise to most people, it seems, but I am not completely surprised based on the underlying motivation of the Fed.

“…The Fed will raise interest rates only when it is confident that the economic recovery is robust and companies have regained the ability to raise prices” (http://blogs.wsj.com/moneybeat/2015/01/30/fed-up-do-rising-rates-matter-after-all/).

Although it seems that the Fed is not in touch with everyday citizens, like you and I, I believe their decision to delay the rise of interest rates is in tune with the best interests of everyday citizens. Although we have been told for a while that the recession is over, it seems that from the perspective of everyday people that is not necessarily the case. It seems like the wealth of the upper class has been rising since post recession, but the middle class and below has not had the same fortune.

The Federal Reserve clearly believes that the economy is not in full rebound yet, hence the delay of raising rates until mid summer. I am happy with the decision the Federal Reserve made, their focus seems to be more on the well being of everyday Americans, rather than worrying about creating high returns for investors. This is not really the common perception of the Federal Reserve; most people seem to think they do not have to best interest of the people in mind. There seems to be this notion or belief that the Federal Reserve is just a group of wealthy bankers in an ivory tower playing with everyone’s money, acting according to the best interest of a few. Their recent decision, however, points to the opposite.

“…Investors seemed mildly disappointed when the Fed reiterated on Wednesday that it would remain “patient”” (http://blogs.wsj.com/moneybeat/2015/01/30/fed-up-do-rising-rates-matter-after-all/).

Although investors seem to be upset with the Federal Reserve’s decision. Most people are not investors so this decision by the Fed to not act does not affect them in the same way as those who speculate based on the Fed’s actions.

“More than three-quarters of Americans say the five-year bull market in U.S. stocks has had little or no effect on their financial well-being, according to a Bloomberg National Poll” (http://www.bloomberg.com/news/articles/2014-03-12/stock-market-surge-bypasses-most-americans-poll-shows).

Bull market is a term used to signal positive beliefs about the market, while bear market is used to signal the exact opposite, pessimism towards the market. Although the stock market, like explained above has been labeled a bull market for the past five years, this has not improved the financial well being of everyday Americans, most who do not own stocks, or at least not a significant amount anyways. With the lower and middle class of America still struggling, it seems that the fed made the appropriate decision to delay raising interest rates.

“Don’t worry about the Fed; be happy” (http://blogs.wsj.com/moneybeat/2015/01/30/fed-up-do-rising-rates-matter-after-all/).

You can be happy; the Fed seems to be thinking about you and I, not just the wealthy elite.

Impact of Illegal Immigrants on U.S. Wages

Last time, we talked about the impact of illegal immigrants on the U.S economy. As I discussed before, it is important to know what the composition of skills of immigrants have in order to know its impact on the labor market. Our assumption last time was that most illegal immigrants are mostly less educated people than U.S native citizens. However, Ottaviano and Peri’s findings explicitly tell us that illegal immigrants only lower the wages of native high school dropouts only by 1.1 %. More importantly, however, increases in the number of illegal immigrants increase the US born wages by 1.8%. What do these findings indicate? Does it necessarily mean that illegal immigrants will never have a significant impact on the US born wages?

In Card’s Mariel Boatlift 1990 paper, it has some answers that we want to explore. Between April and October in 1980, a massive number of Cubans migrated into the United States, which is called the Mariel boatlift. More than 100,000 people left to the United States to seek for freedom and wealth. Most Cubans from Mariel Boatlift went to Miami, suggesting that the labor supply in Miami had increased dramatically in a short time period. This unexpected and rapid increase in number of immigrants increased the city’s labor force by 7 percent. Guess what happened to Miami’s wages? This is what I will talk about this time in order to find the general effect on the unskilled immigrants on United States.

Although most people would expect that the Mariel Boatlift harmed the U.S. labor market, Card found out that wages and employment opportunities of unskilled workers did not have an impact by the large inflow of Cuban people. I could not understand the reason why this is true because I learned in economic class that an increase in labor supply would not only decrease the wage but also lower the quantity of labor.

The results lead to the question how the Miami labor market was able to absorb a 7 % increase in the labor force without any negative effects. One possible answer for the rapid absorption of the Mariel immigrants is the growth of industries that utilize relatively unskilled labor. Card states, “the industry distribution in Miami in the late 1970s was well suited to handle an influx of unskilled immigrants”. Miami adopted a new technology much later than other states, which supports the idea that Miami employed unskilled labor.

We cannot definitely conclude that the influx of illegal immigrants does not have a significant impact on the U.S wages. However, Card’s Mariel Boatlift suggests that illegal immigrants or unskilled immigrants tend to have a small effect on the U.S wages.

 

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What is the gross domestic product (GDP)? The gross domestic product is one of the crucial indicators that economists use to examine the health of a country’s economy. The gross domestic product is the total dollar value of all goods and services that are produced by individuals, firms, foreigners and the governing bodies over a specific time. It is not easy to measure GDP but there are two simple ways to calculate it. The first method is adding up what everyone in a country earned in a year. The second method is adding total consumption, government spending, investments and net exports. The following formula is a general way to find out the GDP:

Gross domestic product= Consumption + investment +government spending + (exports-imports) or GDP= C+I+G+(X-M)

C=spending

I= Investment by businesses

G=Government spending

(X-M)= Net exports, which is the value of exports minus the value of imports.

Why do economists care about the gross domestic product? GDP provides an insight to investors since GDP consists of consumptions, investment expenditure, government spending and net exports that shows overall picture of economy. Moreover, it is also important for policy makers since their economic decision heavily relies on GDP. Lastly, it gross domestic product is used as an indicators that tells us whether the economy is in depression, recession or boom. For these reasons, it is really important for economists to calculate GDP in order to have an overall picture of economy.

What about the GDP growth rate of the United States? GDP growth rate in the United States averaged 3.27 percent from 1940s until 2014. The highest GDP growth rate in the United States was 16.90 % in 1950 and the lowest GDP growth rate was -10 percent in 1958. For 2015, economists forecast that the GDP growth rate would be around 3%, which is higher than the last year’s GDP growth rate, 2.6%. Many economic experts claim that the drop in oil prices would be good for the domestic economy for short-term but they also expect that the U.S. will encounter with deflation as well. They said that falling oil prices would increase the GDP growth rate either by “slightly” or “considerably”. Bernard Baumohl of the Economic Outlook Group said “The plunge in energy pries provides big dividends to consumers and businesses”. Diane Swonk of Mesirow Financial also said, “The fall in oil prices represents a backdoor boost to takehome pay, the likes of which affect the masses, not just a few”, implying that many experts think that the drop in oil price would lift up GDP growth rate. However, some experts claim said cheap oil would not have any impact on the growth rate of GDP.