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Income inequality has become an increasingly important public policy
issue in industrialized countries in recent years. Although macroeconomic conditions have
been favorable in many of these countries, the distribution of income within and across
countries has remained uneven. In fact, in several countries, income inequality has
risen.As a result, policymakers have become concerned that large segments of the
population are not reaping the benefits of economic growth.
To gain a better understanding of these issues, the Federal Reserve Bank of Kansas City
sponsored a symposium titled "Income Inequality: Issues and Policy Options" held
at Jackson Hole, Wyoming, August 27-29, 1998. The symposium brought together a
distinguished group of public officials, academics, and private-sector representatives.
The discussion was far-ranging and insightful. As moderator Alice Rivlin noted toward the
end of the conference, while there was a divergence of opinion in several areas, there was
a consensus that "poverty, deprivation, and lack of opportunity are things that ought
to be of great concern to us."
Weiner and Monto summarize the papers and commentary presented at the symposium. The first
section reviews the changes in income inequality patterns over the past two decades. The
second explores the reasons for these changes. Monetary policy links and the economic
impact of distributional change are taken up in the following two sections. The final
section considers policy options and summarizes the remarks of an overview panel.
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As the current expansion nears its eighth anniversary, it becomes
tempting to wonder whether the second-longest expansion
in U.S. economic history is nearing an end. The only U.S expansion to last longer was a
nearly nine-year expansion that occurred during the Vietnam War. Thus, the current
expansion is heading into uncharted territory as the longest peacetime expansion in U.S.
history. The length of the current expansion might be viewed by some analysts as
worrisome.
Haimowitz examines whether there has been a systematic shift in the behavior and length of
expansions in the post-World War
II period. Understanding whether there has been such a shift may help policymakers,
businesses, and consumers evaluate the upside and downside risks to the economic outlook.
The author argues that the length of the current expansion does not signal a downside risk
to the economy. When viewed in the context of all other postwar expansions, the length of
the current expansion should not be seen as worrisome.
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Investors and market analysts generally believe that the yield on a
nominal bond includes an inflation risk premium to compensate investors for bearing the
inflation risk associated with the bond. Knowing how much of a risk premium investors
require on nominal bonds can be valuable information for policymakers. For government
Treasuries, the size of the risk premium represents the potential interest savings for
governments when nominal securities are replaced with real, or inflation-indexed,
securities. And, because the inflation risk premium reflects perceived inflation
uncertainty, changes in the size of the risk premium can reveal to monetary policymakers
how credible their policy actions are in the marketplace. Unfortunately, empirical
evidence on the actual size of the inflation risk premium and its response to market
events is scarce.
To address these empirical shortcomings, Shen uses data from the United Kingdom, where
about 20 percent of outstanding government debt is in the form of real bonds. She finds
that the inflation risk premium in nominal government bonds is sizable. She also finds
that information regarding the inflation risk premium may give useful insight to monetary
policymakers. For example, changes in the estimated inflation risk premium in the UK in
the second half of 1992 suggest that the announcement of an explicit inflation target did
not gain instant credibility with financial market participants.
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Over the past several decades, the beef industry has seen a sharp drop
in its share of the retail meat market. While per capita meat consumption has grown, per
capita beef consumption has plunged.Explaining the drop in beef's market share has become
a favorite pastime of industry analysts. In fact, a family feud of sorts has broken out in
the industry between those who think the decline largely reflects increases in beef's
price relative to competing meats and those who stress nonprice factors such as lifestyle
changes, health concerns, and so forth as causes of decline. Regardless of the cause,
however, the solution to the problem is likely the same.
Whatever the cause of beef's declining market share, the pork and poultry industries have
clearly benefited. Poultry, in particular, has seen its market share soar in recent years
as per capita consumption boomed. Most analysts attribute the success of the poultry and
pork industries to their ability to achieve a high degree of vertical coordination between
different links in the production chain. In particular, vertical coordination has allowed
them to become consumer-product driven industries while achieving significant cost
reductions that have lowered retail prices.
Lamb and Beshear suggest that for the beef industry to recapture its lost market share it
must become a consumer-driven industry. A critical step in the process is achieving a
greater degree of vertical coordination across the production chain. Vertical coordination
in beef production may take many different forms. In fact, three alternative forms of
vertical coordination in the beef industry seem possible, from modest changes in how beef
is priced, to marketing cooperatives and producer alliances, to the most radical change
full vertical integration of beef production. Which path of change the industry will
follow is unclear, but marketing cooperatives appear to offer the best chance for the
industry to recapture market share.
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Labor markets in the Tenth District are tighter now than at
any time in recent memory. The steady fall of unemployment rates in recent years has led
many analysts to wonder if future economic growth in the region could be restricted by
labor shortages. The district's labor market is actually even tighter than suggested by
its unemployment rate of less than 4 percent in 1998 due to the presence of two other
significant, but often overlooked, factors: high labor force participation rates and
slowing domestic migration flows.
The labor force participation rate, meaning roughly the percentage of the working-age
population that is actively taking part in the labor force, has been increasing rapidly in
the district this decade and is now well above the national rate. This means the district
is likely to have a more difficult time drawing new workers from its own population in the
future. Likewise, the district has suffered in recent years from smaller net migration
flows from the rest of the country after several years of strong gains following the
1990-91 recession. Thus, at a time when district labor markets need to be drawing more
workers from other parts of the country, the flow of new workers is actually drying up.
Gazel and Wilkerson explore whether the growth of jobs in the district is likely to be
hampered by slower growth in the labor supply in the presence of tight labor markets. They
find that the district's extremely low unemployment rate, combined with a record level of
labor force participation and diminishing migration inflows, does indeed reflect an
economy that is likely to suffer from slow labor supply growth in the near future.
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