The German Research Foundation (DFG) awarded grants to seven SCEPA economists to support research on wealth and disparity in the United States and Germany.

Cole Strangler of the International Business Times provides context for the Department of Labor's January employment report in his article, Job Growth Still Hasn't Translated Into Wage Gains.

This week's Worldly Philosopher, Julia M. Puaschunder, describes how meritocracy enables intergenerational mobility to foster equitable societies.

This week's Worldly Philosopher, Kyle Moore, discusses how the disparity in morbidity between Black and White individuals can result in unequal retirement time and benefits.

This week's Worldly Philosopher, Raphaele Chappe, questions the inequality in investor returns.

It’s well known that the causes of the crash of 2008 and the subsequent Great Recession were a housing bubble and a financial crisis. But what were the long-term trends that brought the American economy to the edge of the cliff?

In the November 24th seminar hosted by SCEPA and The New School Economics Department, UCLA Professor of Urban Planning Matthew Drennan named income inequality as the decisive factor behind the crisis. In a talk based on his recently released book, “Income Inequality: Why it Matters and Why Most Economists Didn’t Notice,” Drennan argued that growing inequality directed income gains to the top sliver of the income distribution, leaving middle-class workers experiencing stagnant or falling incomes. To keep up with consumption, these households took on unsustainable debt, often leveraged through home equity.  As we know, the collapse of the housing market then caused indebted households to default at unprecedented rates, setting off a massive global financial crisis.

Drennan focused on the average propensity to consume (APC), an economic statistic that measures the ratio of total consumption to total income. When the APC rises, workers are either saving less or going into debt. Many mid-twentieth century economists had predicted that the APC would remain constant. Instead it rose quickly, as income gains accrued mostly to the wealthy, and middle- and low-income earners spent more of their take-home pay to keep up. For Drennan, this was because stagnant or falling wages forced most Americans to reduce savings rates or take on the unsustainable debt that was the root cause of the financial crisis.

Economists Jasmina Arifovic and Janet Hua Jiang found that public information, regardless of its validity, can affect how people make decisions during times of financial crisis.

On October 13th, Arifovic presented a lecture on her research as part of an economics seminar series jointly hosted by SCEPA and The New School's Economics Department. Arifovic currently serves as director of the Centre for Research in Adaptive Behaviour in Economics and professor of economics at Simon Fraser University.

Economists have long been interested in whether non-fundamental economic factors, known as "sunspots," can cause or exacerbate financial crisis. Though the concept seems to run counter to the standard economics assumption of rationality, sunspots have been incorporated into important theoretical models of economic crises.

Arifovic's research focuses on measuring the effects of sunspots through controlled experiments. She enlists undergraduates to play a simple game. Given a "bank account" and information about possible rates of return, they decide whether or not to withdraw their funds.

A sunspot is then introduced: a sequence of randomly generated public announcements forecasting how many people will choose to withdraw. When economic conditions are safe or precarious, participants ignore the sunspot. But when conditions are uncertain, they incorporate it into their decisions.

She concludes that in times of uncertainty, behavior is sensitive to publicly available information, even when the information is unrelated to economic fundamentals. The policy implications are clear: public officials and business leaders should pay close attention to the wording of their public statements during times of crisis or uncertainty, when those statement may be more potent than usual.

The New School hosted the release of the United Nations Conference on Trade and Development's (UNCTAD) 2015 Trade and Development Report.

by Rick McGahey, SCEPA Senior Fellow

While May's stronger job growth is welcome, continuing low inflation and annual wage growth below 2.5% don't present any macroeconomic threats that warrant driving up interest rates. But the Fed, like many economic policymakers, seems to be operating in a "new normal" where an unemployment rate of 5.5% is considered full employment. That is not a world where most workers and families will make any significant economic progress.

The May employment report shows job creation numbers bounced back with a gain of 280,000. And an upward revision of the numbers for the previous two months added 32,000 jobs, pushing the three-month rolling average to 207,000 new jobs per month. The unemployment rate ticked up by a probably meaningless one-tenth of a percent, to 5.5%. The big jump in employment has many observers predicting a Federal Reserve interest rate increase sooner rather than later.

But even with these job gains, we still are not seeing significant labor market pressures.

Average hourly wages have risen by 2.3% in the last year, while average working hours have not moved at all—34.5 hours per week, the same as a year ago. And labor force participation remains at historically low levels, suggesting that there are still many potential workers who could be drawn into the market if jobs or wages were growing faster.

Nevertheless, it is a strong monthly jobs report, and will be reassuring to those observers—like me—who feared that weak reports in the previous two months, coupled with other feeble macroeconomic data, might be signaling an economic slowdown. 

Indeed, first quarter GDP figures have been revised downward, and now show a negative seven-tenths of a percent decline. (Many economists think something is awry with the first quarter estimations of GDP, and argue that the economy actually grew slowly in the first quarter.)

Today's employment report has some economic observers predicting the Federal Reserve will start raising interest rates this summer, perhaps as soon as next month. Others argue that with an annual inflation rate still below two percent, the Fed should hold off.

These cautionary voices include Christine Lagarde, head of the International Monetary Fund, who this week advised the Fed that it would be "better to wait for stronger signs of inflation pressures and have an interest rate hike in the first half of 2016." The IMF, like many observers, sees continuing U.S. growth as essential for the world economy, given the difficulties in the Eurozone and slow growth elsewhere in the world, and doesn't want a U.S. slowdown at this point.

But the Fed isn't likely to heed that advice and is on track to raise rates this year, absent "some dark cloud" threatening growth, says William Dudley, head of the New York Fed. 

 by Rick McGahey, SCEPA Faculty Fellow