MacroScope

Why EU elections can matter

Some interesting action over the weekend: in a foretaste of this week’s EU elections, Greece’s leftist, anti-bailout Syriza party performed strongly in the first round of local elections on Sunday, capitalizing on voter anger at ongoing government austerity policies.

If it did even better in the EU polls it could threaten the ruling coalition and tip Greece back into turmoil just as there are signs that it has turned the corner.

Bank of England Governor Mark Carney sounded dramatically more alarmed about Britain’s housing market, saying it posed the biggest risk to the economy and harboured deep structural problems.

There can now be little doubt that the Bank will use new powers to try and rein the market in, particularly in London, when its Financial Policy Committee meets next month. Carney’s concern prompted Deputy Prime Minister Nick Clegg to say the government might have to rein in its “help to buy” scheme which aims to get more people on the property ladder.

Among other measures, the BoE could recommend caps on the size of home loans granted in relation to a property’s value or a borrower’s salary but one of the problems with London – the real hotspot – is that the market is being ramped up by an influx of foreign money which does not require a mortgage to buy.

U.S. minimum wage hike would offer short-term economic stimulus: Chicago Fed

President Barack Obama proposed a hike in the U.S. minimum wage during his State of the Union Address in February. Since then, we haven’t really heard very much about the proposal. That’s too bad for a U.S. economy that could still use a bit of a boost, according to new research.

A paper from the Chicago Fed finds that, while there might be little impact on long-term growth prospects from a higher minimum wage, the measure could add as much as 0.3 percentage point to gross domestic product in the short-run. That’s not insignificant for an economy that expanded at a soft annualized rate of just 1.1 percent over the last two quarters.

This is how the authors summarize their findings:

A federal minimum wage hike would boost the real income and spending of minimum wage households. The impact could be sufficient to offset increasing  consumer prices and declining real spending by most non-minimum-wage households and, therefore, lead to an increase in aggregate household spending. The authors calculate that a $1.75 hike in the hourly federal minimum wage could increase the level of real gross domestic product (GDP) by up to 0.3 percentage points in the near term, but with virtually no effect in the long term.

Three years after last increase, business group calls for U.S. minimum wage hike

Bucking the usual tune of private sector lobbyists, a group called Business for a Fair Minimum Wage is calling for a hike in the minimum wage, saying it would boost business and the economy.

Business for a Fair Minimum Wage is a project of Business for Shared Prosperity, which describes itself as a national network of “forward thinking” business owners and executives.

The last step of a three-step federal minimum wage increase went into effect on July 24, 2009. The $7.25 an hour current minimum wage comes to just $15,080 a year for full-time work, below the poverty line.