ECB has no match for Federal Reserve’s jobs for all surge


When the European Central Bank unveils the results of its major strategy review this year, there will be at least one stark contrast to the US Federal Reserve’s own fiscal year. Inequalities in the labor market, a hot topic of the 2020s and a central part of the Fed’s conclusions, seems likely to receive much more moderate treatment in Frankfurt.

This is in part because the ECB does not have the Fed’s dual mandate for price stability and full employment. But it is also because policymakers in Europe do not have access to the data to give them a full picture of inequalities in the region, including whether racial and ethnic minorities also benefit from monetary and fiscal stimulus.

Bloomberg’s analysis of speeches by ECB board members shows that mentions of terms related to labor markets have declined, while references to climate change and a the digital euro – two popular questions with President Christine Lagarde – has increased.

Mentions in ECB speeches

Data: Bloomberg analysis of the ECB’s speeches dataset as of June 1, 2021

“The ECB appears to have focused more on medium to long term climate-related issues than short-term employment issues,” said Randall Krozsner, member of the 2006 Fed Governing Council to 2009 and now a professor at the Booth School of Business at the University of Chicago. “It is very important in this strategy review for them to look across all horizons.”

The risk of not accurately identifying high unemployment sectors is that the ECB cuts stimulus too early in the recovery. This could end up penalizing minorities who might otherwise have found work and harming the economic potential of the bloc.

Jobs is one of the ECB Review’s 13 fields of study, its first in nearly two decades. A year and a half into the process, the decision-making board has yet to officially discuss the matter and does not plan to do so until this month, just before the end of the fiscal year, according to people. familiar. with matter. An ECB spokesperson declined to comment.

The Fed made waves last year when it admitted it had failed to properly account for the unemployment of marginalized groups, who tend to lag in the economic recovery. He now believes he can keep his policy flexible longer without causing too much inflation. This is a key part of the record US expansion, which has seen unemployment fall to historic lows while price pressures have remained subdued.

Lagarde acknowledged that it would be difficult for him to emulate Fed Chairman Jerome Powell, who has repeatedly cited the high unemployment rate among black workers during the pandemic as a reason to keep monetary support in place.

“It is difficult to compare the Fed and the ECB from this perspective of inclusiveness, because the employment objective that the Fed has explicitly in its mandate, along with price stability, is the instrument through which the inclusiveness can be taken into account, ”Lagarde said at an event in April.

Germany, already multi-ethnic, debate on refugees

Berlin’s Neukölln district is home to several businesses that cater to immigrant communities.

Photographer: Sean Gallup / Getty Images

the data shortage on minorities in the EU is a legacy of the Holocaust. Classifying citizens by race or ethnicity is taboo in many countries, including Germany and France, the largest economies.

This is a significant gap: the European Network Against Racism estimates that around 11% of the 450 million inhabitants of the European Union belong to racial and ethnic minorities. Even so, mainstream economists often do not consider discrimination as a variable in their models. Instead, inequalities are explained as “skills gaps”.

“There is a tendency in the European Union to ignore the possibility of racial discrimination, even more so than in the United States,” said William Spriggs, chief economist at the American trade union federation AFL-CIO, who has written extensively on Fed policy and black unemployment. .

There is evidence of such inequality. A recent report in Germany showed that people with direct and indirect ‘migration backgrounds’ were about twice as likely as those without anticipating or experiencing job loss in the first months of the pandemic. A 2019 study commissioned by the French government found that in large companies, job seekers with Arabic-sounding names received an average of 25% fewer responses than competitors with European-sounding names.

As the ECB has stepped up its research on economic inequalities – and faced the particularly difficult task of doing so in 19 countries – its ability to study the most vulnerable groups has been limited by the lack of data on race or l ‘Ethnicity. A group of economists who produced a newspaper in March showing how the crisis particularly affected women, youth and low-income households called for investing in new models and data sources to fully capture the effects of the policy.

Central Bank of Ireland Governor Gabriel Makhlouf told Bloomberg he would like to see a particular focus on “distributional aspects of economic shocks and monetary policy” under the employment pillar.

ECB policymakers have for years cited a larger-than-expected labor market slowdown as the main reason they have not been able to raise inflation to target levels. Most still believe that there is a strong and rapid relationship between jobs, wages, and prices, as depicted by the Phillips curve, a decades-old economic concept.

Latvian central bank chief Martins Kazaks told Bloomberg in March that while he doesn’t expect the strategy review to dig deeper into labor market data, “if you don’t not the history of the labor market, you can not understand the Phillips curve. . “

(Corrects the title of Martins Kazaks in the last paragraph.)


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