Photographer: Meg Roussos/Bloomberg

What Economists May Have Gotten Wrong About Refugees and Wages

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How refugees affect native-worker pay is hotly-debated in economic literature, and new research takes a crack at figuring out why different studies arrive at vastly different conclusions. 

The resulting finding — that refugees have only a tiny effect and that data issues gave rise to the divide — leads off this week's economic research roundup. We've also summarized studies that dig into the unemployment and inflation link, look at policy uncertainty in Japan, and examine whether the U.S. Federal Reserve should have moved sooner to prevent the boom-era real estate bubble. Check this column every week for the latest in economic research from around the world. 

On the refugee/wage debate... 

Immigration has at most a small impact on average native-born workers, based on new research from the Center for Global Development in Washington.

Michael Clemens and Jennifer Hunt take a look at a famous, contentious case in immigration literature: the 1980s influx of Cuban refugees from Mariel Bay into Miami. Some economists say the wave of newcomers had no effect on native wages. Harvard University's George Borjas, a leading economist known for being more pessimistic about the benefits of immigration, blames it for a 10 percent to 30 percent pay cut for males with less than a high school education.

Clemens and Hunt try to settle the discrepancies, and find that a simultaneous shift in the study population that had nothing to do with the Cubans could have caused the difference. More black men were sampled amid a push to better include blacks in nationally representative survey data, and because they earned less, it resulted in a wage decline. Clemens and Hunt examine several other studies and reach the same conclusions: refugee inflows don't mean much for local workers. 

The Labor Market Effects of Refugee Waves: Reconciling Conflicting Results
Published May 22, 2017
Available on the Center for Global Development website 

Whither the Phillips curve

It's alive, at least in some segments of the economy. Morgan Stanley research shows that in two parts of the inflation basket, shelter and a measure of core services (which doesn't include housing and healthcare), the Phillips curve is still kicking. Refresher: the Phillips curve is a relationship where low unemployment leads to higher prices, and economists have been worried that it's dead because inflation has been slow to rise even as joblessness plummets. This finding adds a sectoral nuance to that conversation.

Still, a weakening trend in home prices and rents as well as declines in oil could make it tough for the Fed to reach its goal of 2 percent inflation, they say. "Even if the Phillips curve-sensitive sectors do well, it may not be enough to propel core and headline inflation higher," Guneet Dhingra and Michel Dilmanian write. 

The Phillips Curve: Wanted Dead or Alive
Published May 2017
Available to Morgan Stanley research subscribers

What stokes uncertainty in Japan?

Analyzing newspaper articles from 1987 to present, economists find that economic policy uncertainty in Japan peaked during the Asian Financial Crisis and in reaction to Lehman Brothers' 2008 failure, the 2011 U.S. debt-ceiling fight, the Brexit referendum and the recent deferral of a hike in Japan's consumption tax rate until 2019.

Based on the analysis, "fiscal matters are the most important source of policy uncertainty in Japan, at least in the perception of journalists and their editors and, presumably, typical newspaper readers as well," according to the authors, who include researchers at the International Monetary Fund, the Booth School of Business and the Japanese Ministry of Economy, Trade and Industry.  

Policy Uncertainty In Japan
Published May 2017
Available at the NBER website

The Fed would've caused major pain by leaning against the housing boom

The Fed has garnered a lot of criticism for being slow to react when easy financial conditions allowed the real-estate market to spiral out of control in the run-up to the last recession. They probably couldn't have done much to avert the crisis, as it turns out.

Stock and house prices have been less responsive to changes in monetary policy during recent episodes of high and rising asset prices, Federal Reserve Bank of San Francisco economist Pascal Paul finds in a new paper. What's more, the percentage change of output per percentage change in house prices quadrupled during the housing boom, which means that policy aimed at cutting into asset prices would have risked sharply reducing growth without having much of an effect on home valuations.

"These results call into question the use of monetary policy to lean against the wind," Paul writes. 

The Time-Varying Effect of Monetary Policy on Asset Prices
Published May 2017
Available on the San Francisco Fed website

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