Uncertain about the effects of uncertainty on jobs

July 23, 2013

Job number one at the Federal Reserve these days is to bring down high U.S. unemployment without sparking inflation. Job number two, it sometimes seems, is explaining just how unemployment got so high in the first place.

Two recent papers published by the San Francisco Fed offer what look like opposite takes on the topic.

“(S)tates in which businesses cited poor sales also registered disproportionately sharp drops in jobs and household spending,” wrote Princeton University professor Atif Mian and University of Chicago Booth School of Business professor Amir Sufi in a February Economic Letter.

This supports the view that a drop in aggregate demand led to job losses during the recession…While business concerns about government regulation and taxes also rose steadily from 2008 to 2011, there is no evidence that job losses were larger in states where businesses were more worried about these factors.

In other words, it’s not uncertainty over government policy that hurts jobs, it’s lack of demand.

Another Economic Letter published this week argued that uncertainty, after all, is quite important.

“Statistical evidence suggests that heightened policy uncertainty has contributed significantly” to a decline in job-recruiting intensity by businesses,” San Francisco Fed researchers Sylvain Leduc and Zheng Liu wrote.

Asked about the apparent contraction, Leduc and Liu said there was none.

“Mian and Sufi’s letter emphasizes weak demand as the main factor behind the weak labor market,” Leduc and Liu told Reuters. “We don’t see our letter as being inconsistent with this view.”

To understand why, they said, flip back to a third Economic Letter from the San Francisco Fed paper on joblessness and the uncertainty. Leduc and Liu penned it last September.

That letter, they said, “made the point that uncertainty shocks impacted the economy as a decline in aggregate demand typically does (i.e., by lowering both economic activity and inflation at the same time). In other words, weak demand could be a reflection of higher uncertainty. The two factors are not necessarily mutually exclusive in our view.”

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It is not the job of the federal reserve to create jobs. the job of the FED is to have a clear and effective monetary policies that businesses can use in the running of their companies to expand and thereby create jobs. The same goes with the government, local and national. The government can’t create wealth producing jobs, therefore it is the responsibility of government to stabilize the economic environment so businesses can do what they need to do to grow and create jobs. Government can only create jobs that leech off the taxpayers. Yes I realize some government jobs are services for the population but they need to be limited and effective and pay their fair share of benefits like the private sector does or you end up with a Detroit.

Posted by kriegan175 | Report as abusive