By Alex Williams


Commentary about the Biden administration’s proposed fiscal relief policies has relied heavily on estimates of the economy’s potential output. However, few commentators or policymakers look under the hood to check how these estimates are calculated. Oftentimes, estimates of potential output — the maximum inflation-adjusted dollar value that the economy can sustain without runaway inflation — are produced by simply fitting a trend to past values of real GDP. More complex models like those used by the Congressional Budget Office rely on statistical residuals like total factor productivity, and unsubstantiated assertions about the labor market. …

By Skanda Amarnath and Alex Williams


The Fed’s framework review and forward guidance from this past fall showed an encouraging willingness to center labor market outcomes over inflation in evaluating interest rate policy. However, the Fed has only partially clarified how they will evaluate real-time inflationary dynamics within their new flexible average inflation targeting regime. The end of the pandemic, alongside substantial stimulus spending, has created an environment where some commentators and policymakers are preemptively worried about inflation, much as they were in 2009 after the Great Financial Crisis. …

Alex Williams, Employ America

Executive Summary

Good policy proceeds equally from good politics and good policy analysis. While the Enhanced Unemployment Insurance provisions of the CARES Act were designed in part by the limitations of the existing UI system, they were extremely successful in supporting workers and driving down the poverty rate. As the pandemic continues, policymakers must learn from these successes regardless of their source and use them to improve future policy. Clear-eyed post facto policy evaluation is a critical aspect of this learning and improving process.

However, the nonpartisan Congressional Budget Office’s analysis of the macroeconomic impacts of the Enhanced…

By Alex Williams and Skanda Amarnath

There is a long tradition of describing recessions based on what letter their aggregate data looks most like when plotted against time. The only difference between a U-shaped recession and a V-shaped recession is how long the economy spends at the bottom, while in an L-shaped recession the economy hits bottom and doesn’t leave. If the economy recovers, but then slips into recession again, we call it a double-dip or W-shaped recession. However, the COVID recession was so unprecedented in its severity and aftermath that commentators are now calling it a “K-shaped recovery.”


by Alex Williams and Skanda Amarnath

The Fed’s recent forward guidance on its zero interest rate policy (ZIRP) was a welcome sign that the Fed’s monetary policy strategy is giving appropriate emphasis to the achievement of sustainably tight labor markets. While there remains room for improvement, we highlight four welcome takeaways from the September FOMC meeting worth celebrating and building upon.

#1: Exiting ZIRP is necessarily preconditioned on achieving tight labor markets, and not just on achieving its 2% inflation target.

With the rise of monetarism and inflation targeting, inflation worries have largely trumped employment concerns in recent decades. In December 2012, the Fed committed to keep interest rates at zero until inflation projections rose above 2.5% or headline U3…

Author: Alex Williams, Levy Institute

Executive Summary

  • The federal government should provide support to state governments during economic downturns in the form of block stabilization grants that serve to replace lost tax revenue. This would contrast from the current state of play, in which state governments cut spending and raise taxes in recession to preserve balanced budgets. The net effect of such grants would be shorter recessions, more job creation, and more stable funding for vital public services. The federal government has done this before through the Treasury Department’s Office of Revenue Sharing.
  • Our proposal utilizes a trigger-based formula for timing and…

By Ernie Tedeschi

Between mid-February and mid-March, the number of Americans unemployed grew by 1.4 million. But the rise in Americans reporting any type of labor market disruption — absence, wanting more hours, or not having a job at all — was almost four times that number: 5.6 million.

That’s according to more detailed government data released Thursday from the Current Population Survey (CPS). This new data paints a richer picture of the state of the economy in March. …

By Brian Nichols

Click here to see our first roundup on state & local austerity.

Spending Cuts


Michigan: On March 30th,“While signing the supplemental spending plan, Whitmer also vetoed nearly $80 million in other spending, like Pure Michigan, Going Pro and MI Reconnect. ‘The supplemental was negotiated in good faith with my administration and the legislative leaders. Key priorities from both sides were included in the bill,’ Whitmer said. ‘But the world has changed since those negotiations and we must react and change along with it.’”

Missouri: On April 1st, “All told, reductions to the budget for the fiscal year that ends…

By Ernie Tedeschi

The coronavirus shock will lead to a dramatic spike in the unemployment rate. But even this surge could understate the true labor market damage from the virus. This is because:

  1. the emergency unemployment insurance benefits passed as part of the CARES Act temporarily relaxed the eligibility requirement that workers be actively looking for work; this will cause at least some of the labor supply response to be along the nonparticipation margin rather than the unemployment margin; and,
  2. some of the labor market response will be among workers who are still working but are involuntarily part-time. In the…

By Brian Nichols

Spending Cuts


Nevada: On March 15th, “Sisolak also announced a hiring freeze within state government and encouraged agencies to limit spending to ‘essential emergency purchases.’”

New Jersey: On March 23rd, “Treasurer Elizabeth Muoio said in a statement issued late Monday night [March 23rd] that $900 [m]illion in appropriations are being placed into reserve”, and “The Murphy administration yesterday froze discretionary spending for the next fiscal year, and the Treasurer yesterday notified towns that the state will not currently pay for the homestead credits that would have applied to the May 1 property tax bills.” (Note: the article treats this…

Employ America

We write, crunch #’s, and tweet about the labor market and economic policy.

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