Dr. David Axelrod, professor in the Department of Economics at the Feliciano School of Business, addresses the question: should the federal reserve subsidize unemployment benefits when increasing the interest rate?
The Fed is attempting to slow down inflation. One of the indicators they use is the growth in the wage rate. This is relevant since labor costs account for over 60% of the production cost of goods, services and experiences. However, the implied reduction in wages is associated with a decrease in paid employment, and with it lost jobs. Thus, increasing interest rates will lead to greater pressure on unemployment benefits. Since unemployment hits the poorest the hardest, , the Fed is making a conscious decision that hurts the most vulnerable. Bearing the extra cost of unemployment "privatizes" it, and reinforces the Fed to optimize the inflation/unemployment mix with a greater sense of the full social cost.
Dr. Axelrod received his Ph.D. in Economics from Rutgers University in 1990, with the dissertation Three Essays on Latency in Economics and Decision Making. He has taught at Montclair State University as an adjunct professor since 2013. Previously, he worked in finance for twenty years as an economist, consultant and actuarial analyst, including positions with Falcon Management, Volvo Finance, and Crum & Forster. He has also produced research in health economics, and the nature of choice and well-being. Dr. Axelrod provides holonomic consultation and workshops. He plays electric bass and has released over a dozen albums of original music.
Dr. David Axelrod, professor in the Department of Economics at the Feliciano School of Business, addresses the question: should the federal reserve subsidize unemployment benefits when increasing the interest rate?
The Fed is attempting to slow down inflation. One of the indicators they use is the growth in the wage rate. This is relevant since labor costs account for over 60% of the production cost of goods, services and experiences. However, the implied reduction in wages is associated with a decrease in paid employment, and with it lost jobs. Thus, increasing interest rates will lead to greater pressure on unemployment benefits. Since unemployment hits the poorest the hardest, , the Fed is making a conscious decision that hurts the most vulnerable. Bearing the extra cost of unemployment "privatizes" it, and reinforces the Fed to optimize the inflation/unemployment mix with a greater sense of the full social cost.
Dr. Axelrod received his Ph.D. in Economics from Rutgers University in 1990, with the dissertation Three Essays on Latency in Economics and Decision Making. He has taught at Montclair State University as an adjunct professor since 2013. Previously, he worked in finance for twenty years as an economist, consultant and actuarial analyst, including positions with Falcon Management, Volvo Finance, and Crum & Forster. He has also produced research in health economics, and the nature of choice and well-being. Dr. Axelrod provides holonomic consultation and workshops. He plays electric bass and has released over a dozen albums of original music.