Women in the Olympics, Over Time

By CATHERINE RAMPELL

Last week Saudi Arabia announced that it was sending two women to the London Olympics, making this the first Olympic Games in which every country taking part is fielding female athletes.

Women will account for about 40 percent of the 10,500 athletes at the London Olympics. That's about the same gender breakdown as in the last two Olympic Games. It's also about twice the share women represented four decades ago, according to Goldman Sachs.

Here's a chart from a recent Goldman Sachs report on the economics of the Olympics, which I wrote about in an earlier post:

The Federal Reserve and the Libor Scandal

By SIMON JOHNSON

Simon Johnson is the Ronald A. Kurtz Professor of Entrepreneurship at the M.I.T. Sloan School of Management and co-author of “White House Burning: The Founding Fathers, Our National Debt, and Why It Matters to You.”

On June 1, 2008, Timothy F. Geithner â€" then president of the Federal Reserve Bank of New York â€" sent an e-mail to Mervyn A. King and Paul Tucker, then respectively governor and executive director of markets at the Bank of England. In his note, Mr. Geithner transmitted recommendations (dated May 27, 2008) from the New York Fed's “Markets and Research and Statistics Groups” regarding “Recommendations for Enhancing the Credibility of Libor,” the London interbank offered rate.

The recommendations accurately summarized the problems with procedures surrounding the construction of Libor â€" the most important reference interest rate in the world â€" and proposed some sensible alternative approache s.

This New York Fed memo stands out as a model of clear thinking about the deep governance problems that allowed Libor to become rigged.

At the same time, the timing and content of the memo raises troubling questions regarding the Fed's own involvement in the Libor scandal â€" both then and now.

According to the recent order against and settlement with Barclays by the Commodity Futures Trading Commission, the Libor “market” had by 2005 become a hotbed of collusion and price-fixing, in which reported interest rates were being manipulated both up and down to the advantage of individual traders and, sometimes, to benefit the banks that employed them.

These activities were widespread, representing â€" depending on your reading of the details â€" some combination of a complete breakdown of compliance and control at Barclays and presumably other banks (mentioned but not yet named by C.F.T.C.) and a pattern of apparent criminal fraud.

The New York Fed was apparently aware of Libor-rigging at some level in 2007 and serious concerns â€" although presumably not the full details of what the C.F.T.C. later established â€" had reached the most senior levels of the Federal Reserve System by early 2008.

In response to a question from Senator Pat Toomey, Republican of Pennsylvania, at a hearing on Tuesday of this week, the Fed chairman, Ben S. Bernanke, confirmed that he became aware of Libor-related issues in April 2008 (see Page 23 of the preliminary hearing transcript from Congressional Quarterly's Transcripts Wire; the other quotations below are from the same source, which is available by subscription only).

There are three questions that Mr. Geithner and his colleagues are likely to face in Congressional testimony on Libor. (The House Financial Services Committee has already announced it will hold hearings.)

First, why didn't Mr. Geithner tell Mr. King the full depth a nd motivation for his concerns?

Both Mr. King and Mr. Tucker say they did not learn of accusations of dishonesty until recent weeks. What exactly did Mr. Geithner communicate as the specific context and rationale for his reform memo? Did he really only talk in general and vague terms, rather than about the detailed and apparently credible accusations regarding Barclays?

Officials at this level speak with each other on a regular basis. There was ample opportunity for full sharing of relevant information.

Second, why didn't the Fed do anything itself about the rigging of Libor, including deliberate misrepresentation of information by people at big banks for material gain â€" keeping in mind that any action that makes a bank look better should be presumed to enhance the bonus of the people involved? This issue also came up in Tuesday's hearing.

Senator Toomey: The question is, Why have we allowed it go on the old way when we knew it was flawe d for the last four years, with trillions of dollars of transactions?

Chairman Bernanke: Because the Federal Reserve has no ability to change it.

Mr. Bernanke emphasized that Libor-rigging is a major problem but was adamant that the Fed bore no responsibility for what happened, adding:

We have been in communication with the British Bankers' Association. They made some changes, but not as much as we would like. It is, in fact, it is, you know, it's not that market participants don't understand how this thing is collected. It is a freely chosen rate. We're uncomfortable with it. We've talked to the Bank of England.

Mr. Bernanke's answer raises â€" but does not address â€" the central issue. The Federal Reserve is responsible for the “safety and soundness” of the financial system in the United States. Does allowing suspicions of fraud to continue unchecked at the heart of this system help to sustain the credibili ty and legitimacy of markets? Surely not.

Trust is essential to all financial transactions. When trust evaporates â€" or is smashed to oblivion through reckless and self-serving behavior at megabanks â€" the consequences can be dire.

The severity of the financial crisis in fall 2008 can be directly attributed to the collapse of trust among financial institutions. Cheating on Libor was not the only cause of this collapse but â€" if Mr. Bernanke is right and market participants knew what was going on â€" it must have contributed to it. Concerns about governance may be tolerated in boom times; when the economy goes sour, investors worry much more about who is hiding problems and may be about to collapse.

The Fed has jurisdiction whenever the safety and soundness of the financial system is at stake. Scott Alvarez, general counsel at the Board of Governors, acknowledged this point in a briefing to Senate staff members last week. According to The Financial Times:

In response to questions from Senate aides, Mr. Alvarez said that the Fed was unable to do more because the alleged manipulation of Libor did not constitute a so-called “safety and soundness” concern â€" a term used by bank regulators to signify threats to a lender's viability.

It is hard to see how Mr. Alvarez and his colleagues could have been more wrong â€" manipulation of Libor most definitely raises safety and soundness concerns.

Third, why wasn't the impact of potential Libor-related litigation included in recent stress tests for the American banks that may prove to be involved?

Three American banks are involved in Libor panels today â€" and apparently also during the period in question. (I have asked the British Bankers' Association to confirm this and other details; it has indicated a willingness to help but was unable to respond by my deadline, and I will report on its information in a future post.) Bank of Ameri ca is a member of the United States dollar Libor panel; Citigroup belongs to several of the larger Libor panels (including the United States dollar, the British pound and euro); and JPMorgan Chase is present on 9 of the 10 Libor panels.

One argument now being advanced from some financial circles against large fines for the banks involved is that this would reduce their shareholder capital enough to constitute a risk to the financial system.

More broadly, we do not yet know with whom Barclays personnel colluded â€" or the full extent of the damage to investors and borrowers. Consequently, no one yet knows the scale of balance-sheet damage that will be done by settlements of Libor-rigging claims.

This could even become a “tobacco moment,” in which an industry is forced to acknowledge its practices have been harmful â€" and enters into a long-term agreement that changes those practices and provides continuing financial compensation. Certainly attorneys gen eral from states that have been damaged will be thinking along these lines.

Yet in his conference call with analysts on July 13, JPMorgan Chase's chief executive, Jamie Dimon, was already discussing the possibility of resuming share buybacks later this year. It is hard to know how the Fed could agree to such reduction in shareholder capital. It is also hard to understand why the Fed continues to allow the payment of bank dividends under these circumstances.

The Libor scandal is different in some ways than other recent financial fiascos; it involves egregious, flagrant criminal conduct, with traders caught red-handed in e-mails and on tape. This is the definition of a “smoking gun.”

It is inexcusable and indefensible if these traders aren't soon brought to account, facing criminal charges in court. That should be first step, with the full support of the Fed (although it obviously doesn't run criminal investigations).

As Dennis Kelleher of Better Markets told Eliot Spitzer this week (see from around 3:29 in this excerpt): “Slapping handcuffs on these traders has to be the next step,” adding, “Handcuffs, squeeze them, handcuffs, squeeze them and move up the chain.” Mr. Kelleher continued, “This is an open and shut case” and “this is egregious criminal conduct.”

He went on: “There's never been any accountability on Wall Street. Wall Street's a high-crime area and the criminals are just let to run free. This would never be tolerated anywhere else in America, and it's time to end the two sets of laws.”

This is what should have been done years ago for all the illegal behavior that led up to the crisis.

And the Fed should want this clean-up, in the interest of financial stability and ensuring future economic prosperity. The integrity and legitimacy of markets are at stake.

There are slight glimmers of hope that Fed thinking may be heading in the right direction, at least in thin king about the structure of the problem.

At Tuesday's hearing, Senator Sherrod Brown, Democrat of Ohio, listed the litany of big banks' recent wrongdoings and the consequent damage, and told Mr. Bernanke: “So many of our biggest banks are too big to manage and too big regulate. I think this behavior shows they're too big to manage and too big to regulate.”

Mr. Bernanke's reply was sensible. “I think the real issue is too big to fail,” he said, adding, “And I think that if banks are really exposed to the discipline of the market that we'll see some breakups of banks.”

Mr. Bernanke feels that the discipline of the market is already working. This is harder to see, particularly in the light of what we learn about bank behavior in connection with Libor.

Let's hope he is starting to see issues in the financial sector more clearly: Too big to fail is too big to exist â€" or to behave in accordance with the law. This is a problem of vast, nontrans parent and dangerous government subsidies; the market cannot take care of this by itself.

Bring Your Questions on Skilled Immigrants

By CATHERINE RAMPELL

Are more skilled immigrants good for the economy? Do they lower American workers' wages? Where are they most in demand?

Now's your chance to ask scholars from the Brookings Institution these and other questions about skilled immigrants. Neil G. Ruiz, Jill H. Wilson and Shyamali Choudhury released a report this week about the geography of H-1B visas, which allow employers to hire foreigners to work in specialty occupations on a temporary basis.

Demand for H-1B workers varies by region, as you can see from the map above. But across the country, openings for science, technology, engineering and mathematics (or STEM) occupations account for nearly two-thirds of requests for H-1B workers.

Submit your questions in the comment box below.

Slight Decline in the Jobs Outlook

By DAVID LEONHARDT

The economic data was just weak enough this week to cause a slight decline in The Times's weekly election-year job tracker. The economists at Moody's Analytics now forecast average monthly job growth of 129,000 in the six months leading up to election, down from a forecast of 131,000 a week ago.

The economists write:

Good news on the economy is scarce; our estimate of second-quarter GDP has been lowered several times, and now is close to 1% annualized. This pace of growth is unlikely to spur faster business hiring, thus the job market will not improve significantly in the third quarter. Not only is spending on a weak trajectory, but it is increasingly difficult to see what would spark stronger growth over the remainder of 2012.

Uncertainty about the economy and U.S. fiscal situation is leading us to lower our forecast for job growth leading up to the election. This was an underlying theme of the Fed 's latest Beige Book, which noted that firms are delaying adding full-time workers. We are also unlikely to get clarity on the U.S. fiscal situation until after the presidential election, keeping the job market recovery in low gear.

The forecast for rate of growth remains in a range that would suggest a close presidential election. As we have noted before:

Historically, nothing - not social issues, campaign advertisements or gaffes - has influenced voters more heavily than the direction of the economy in an election year. In only three races since World War II has the outcome been different from what the economy's direction would have suggested: 1952 (when the popular Dwight D. Eisenhower was running), 1968 (when the Vietnam War hobbled the Democrats) and 1976 (when Watergate hobbled the Republicans).

Discouraged Dads

By NANCY FOLBRE

Nancy Folbre is an economics professor at the University of Massachusetts, Amherst.

The percentage of men who contribute time and money to raising children has declined over time in the United States, the other side of the more publicized trend of the rise of single motherhood.

As Jason DeParle points out in a recent article in The New York Times, changes in household structure have contributed to increased poverty and inequality.

But the changes in fathers' willingness to support children associated with these residential shifts may be as much consequence as cause of increased poverty and inequality. Public policies have done little to address this problem beyond small-scale efforts to promote marriage through counseling and education.

Most discussions of single mothers focus on their choices, faulting them for deciding to raise a child without a secure commitment from a father.

Yet the majority have been to the altar (or a justice of the peace) at least once. In 2010, about 62 percent of custodial mothers living with children whose biological father was absent were either divorced or married.

Further, the detailed and comprehensive “Fragile Families and Child Well-Being” study, focusing on low-income parents, shows that most mothers were romantically involved with the fathers of their children during pregnancy and childbirth, hoping for a long-run parenting partnership.

Both nonmarital births and divorce, shaped by a class gradient, are lower among the more educated. One could argue that women who don't get a college degree are stupid, and stupid women are not very smart at picking parenting partners, so we should discourage them from bearing children.

This seems to be the implicit argument behind widespread hostility to public assistance for single mothers. We need to save them from the spider web of dependency o n government.

This argument, combined with the widespread misperception that most single mothers are black, helps explain why policies in the United States are so much less supportive of single parents than those in other countries. It also helps explain why poverty rates among children in the United States are exceptionally high. (For detailed statistics, see this compendium provided by the advocacy group Legal Momentum).

Many single mothers are also handicapped by low wages and poor benefits in paid employment.

Still, if they would just marry men like Mitt Romney, they would have it made. Instead, they have sex with men who don't help pay their bills.

In 2009, the latest year for which data are available, only about 41 percent of custodial parents (predominantly women) received the child support they were owed. Some biological dads were deadbeats.

Many others simply couldn't pay up. Men with low levels of education have also been hammered in t he job market, and William J. Wilson, among others, has pointed to the decline in “marriageable men” as part of the explanation of changes in family structure. A study of Britain between 1971 and 2001 suggests that deindustrialization and job loss contributed significantly to the growth of lone parenthood.

A recent Government Accountability Office report shows that economic recession also bites. The year 2009 was the first in the history of the current child enforcement program to show a decline in total receipts, even though the amount “intercepted” from unemployment payments nearly tripled.

The report also points out that many states currently dictate that child support payments for families receiving public assistance be used to repay the state, rather than to benefit children.

Declining real wages, high unemployment and cutbacks in social programs affect a wide swath of the economically vulnerable. Research in the field of social epidemiology sh ows that poverty and economic inequality are stressful, with negative effects on both the physical and mental health of those who feel they have little control over their lives.

In “Promises I Can Keep,” the sociologists Kathryn Edin and Maria Kefalas show how the endless struggle to make ends meet can exacerbate mistrust in couples. In continuing research, Professor Edin and Timothy Nelson are studying why many men find it difficult to remain involved with their children.

The social psychologist Shelley Taylor asserts persuasively that men and women have evolved different responses to stress. Men, when threatened, often experience a “fight or flight” response. Women are more likely to resort to a “tend and befriend” strategy.

This gender difference could help explain why low-income women are more likely than their affluent counterparts to become mothers, while low-income men are less likely to live with the mothers of their children.

We k now that high unemployment rates in the United States contribute to a discouraged-worker effect, in which people give up actively searching for employment and drop out of the labor force.

Economic conditions at the bottom of the income distribution are also contributing to a discouraged father effect.

More Diversity in the Suburbs

By REBECCA BERG

America's suburbs are becoming more diverse, but tenuously so, a study has found.

The study, conducted by Myron Orfield and Thomas Luce at the Institute on Metropolitan Opportunity at the University of Minnesota Law School and released Friday, determined that the number of racially diverse suburbs increased by 37 percent between 2000 and 2010, and diverse suburbs are growing more quickly than majority-white suburbs.

The findings, which draw on data from the nation's 50 largest metropolitan areas, also underscore shifting demographic trends, which indicate that minority groups will be in the majority in only a few decades.

“People that grow up in diverse communities are comfortable living and working in the multiracial society we're going to become,” Mr. Orfield said.

Diverse communities strike a fragile balance that can easily be lost over time, the study found. Once the communities fell back into segreg ation, they tended to remain that way.

“The frightening thing is they don't stay stable and we don't have a plan to keep them stable,” Mr. Orfield said. “We haven't finished with the issues of discrimination in the housing market that make these things unstable.”

Those issues, although technically outlawed in large part by the Fair Housing Act, which was passed in 1968 and amended substantially in 1988, persist because of mortgage lending discrimination, a lack of affordable houses and rentals, the manner in which school districts draw their boundaries, and racial steering, wherein real estate agents show homes with a neighborhood's demographics in mind.

“What this report reinforces is the need to thinking about a new housing policy for the country,” said Bruce Katz, the director of the Metropolitan Policy Project at the Brookings Institution. He added, “The question is whether we're doing it in a smart or stupid way. Some places have been doing it smartly and the end result is opportunity.”

Among those places that the study found to be acting smartly was the Oak Park neighborhood of Chicago, where the community has made a concerted effort to maintain racial diversity, in part through free assistance for those seeking housing.

In other diverse suburbs, too, such as Montgomery County in Maryland or the Louisville, Ky., area, desegregation was often a function of effort. Cities in the North and the Midwest, Mr. Orfield said, showed the least progress.

It's a nontrivial issue, because living in a suburb can often afford minority groups access to better schools and resources, while fostering a sense of community that encourages civic engagement and a host of other benefits.

“More communities need to work on remaining stable,” Mr. Orfield said. “It's not just something that happens; it's something that communities need to consciously attempt to do.”

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A Closer Look at Middle-Class Decline

By DAVID LEONHARDT

No one can accuse the presidential campaign of ignoring the American economy or the plight of the middle class. Yet the scale and the complexity of the problem are typically lost amid the charged back-and-forth between President Obama and Mitt Romney.

For the first time since the Great Depression, middle-class families have been losing ground for more than a decade. They, and the poor, have struggled particularly badly since the financial crisis led to a global recession in 2008. The idea that living standards inevitably improve from one generation to the next is under threat. Many of the bedrock assumptions of American culture - about work, progress, fairness and optimism - are being shaken. Arguably no question is more central to the country's global standing than whether the economy will perform better in the future than it has in the recent past.

Over the next few months on this blog, several colleagues and I wil l look in some detail at the challenge and at possible ways forward, and we'll encourage you to weigh in with questions, ideas and other feedback. Later in the presidential campaign, I'll produce an article with my take, with the hope that it will serve as a jumping off point to further debate. This article will be one of a handful that The Times produces on the biggest issues facing the country as it chooses its leader for the next four years. We're calling the series the Agenda.

Heading into the project, I see the economy's problems along these broad lines:

Since median inflation-adjusted family income peaked in 2000 at $64,232, it has fallen roughly 6 percent. You won't find another 12-year period with an income decline since the aftermath of the Depression.

This unhappy phenomenon has two major sources. First, economic growth in this country has been relatively slow in recent years, which means the total bounty that the Am erican economy produces, to be shared by all of its citizens, has not been growing very rapidly. Even before the financial crisis began in 2008, economic growth in the decade that started in 2001 was on pace to be slower than growth in any decade since World War II.

Then of course came a deep recession that caused the economy to shrink.

In addition to the slow growth in overall size of the pie, the share that has been going to anyone but the richest Americans has been declining. The top-earning 1 percent of households now bring home about 20 percent of total income, up from less than 10 percent 40 years ago. The top-earning 1/10,000th of households - each earning at least $7.8 million a year, many of them working in finance - bring home almost 5 percent of income, up from 1 percent 40 years ago.

In the simplest terms, the relatively meager gains the American economy has produced in recent years have largely flowed to a small segment of the most affluent hou seholds, leaving middle-class and poor households with slow-growing living standards.

Why has economic growth slowed and income inequality soared? We invite readers to make their own case or simply to raise questions and possibilities. To do so, you can post a comment below or send an e-mail to agenda@nytimes.com.

In the next installment, we'll start to dig into the causes.

Other Ways to Look at G.D.P. and What It Tells Us

By BRUCE BARTLETT

Bruce Bartlett held senior policy roles in the Reagan and George H.W. Bush administrations and served on the staffs of Representatives Jack Kemp and Ron Paul. He is the author of “The Benefit and the Burden: Tax Reform â€" Why We Need It and What It Will Take.”

My last post, on the impact of federal stimulus on economic growth, appears to have confused some readers. My purpose was to explain the basics of national income accounting and how stimulus fit in. The point was that some federal spending is stimulative by definition. Other spending may or may not be stimulative; only analysis can determine that.

Let me revisit national income accounts to note that they are like double-entry bookkeeping: two completely different things, debits and credits, must necessarily add up. Because they are calculated separately from different sources, the fact that they must add up allows one to be a check on the accuracy of the ot her.

In my previous post, I explained that the gross domestic product is calculated by adding together consumption, investment, net exports (exports of goods and services minus imports) and government consumption or investment at all levels (federal, state and local).

But one can just as well look at G.D.P. in two other ways. The first is to decompose G.D.P. into a different set of categories consisting of sales of goods, services and structures, whether for consumption or investment, to their final users, whether they are businesses or individuals.

Final sales of goods and services is basically the same as G.D.P. except for changes in inventories. When businesses add to inventories, it raises G.D.P.; when they draw down inventories, it subtracts from G.D.P., which is intended to measure current production. Inventories represent past production.

Within the category of final sales are three major subcategories: goods, services and structures (buildings, houses). Within goods are durable and nondurable goods. Nondurable goods are items like food and clothing that are consumed relatively quickly or used up. Durable goods are longer-lived, such as automobiles, computers and industrial equipment that will last for years.

In 2011, nominal G.D.P. was $15,094 billion. Of this, purchases of goods accounted for $4,259 billion, or 28 percent. Of the goods, about half were durable ($2,186 billion) and half nondurable ($2,073 billion). Consumption of services accounted for $9,812 billion of G.D.P. or almost two-thirds. Production of structures added $1,022 billion or 7 percent.

Another way of looking at G.D.P. is to add up various types of income. This is done in a separate statistic called gross domestic income. In theory, it should equal G.D.P. and thus is a check on its accuracy, just as debits and credits are.

The following table shows how gross domestic income is calculated. N ote that although it should equal G.D.P., it is in fact slightly higher. This may change through future data revisions.

Some economists believe that gross domestic income may be a better measure of the economy for analytical purposes. One problem is that the underlying data necessary to calculate the income side of the economy comes largely from tax records, which tend to be slower in being available than data from industrial production and other components of G.D.P.

Some readers may be wondering where government transfer payments are in the national income and product accounts. They don't appear in G.D.I., because transfers don't arise from current economic activity, as is the case with wages and profits. Note that certain taxes are a positive figure in G.D.I. to account for the fact that they are deductible by businesses in calculating profits.

Transfers can be found in a separate calculation for personal income, which consists of compensation for workers , proprietors' income, rental income, interest and dividend income, and transfers. However, social insurance taxes are subtracted to avoid double-counting.

Obviously, all this is very complicated, and economists are constantly debating theoretical questions about how G.D.P. and other key economic figures are calculated. These issues are frequently discussed in a government publication called the Survey of Current Business, available from the Bureau of Economic Analysis.

One hotly debated issue in recent years has been accounting for environmental degradation in the national income data. In 1999, the National Research Council published a report urging a number of changes that would improve our understanding of mineral extraction, renewable energy and related issues.

Another issue is the extent to which figures such as G.D.P. relate to happiness and well-being. In 2009, the economists Joseph E. Stiglitz and Amartya Sen, both winners of the Nobel Prize, publis hed a study pointing to a number of ways in which measures of economic growth and well-being are in conflict.

The Organization for Economic Cooperation and Development now publishes data comparing major countries on a wide variety of measures of well-being beyond those narrowly economic in nature, such as community, civic engagement, life satisfaction, safety and work-life balance.

Whether a particular set of data is appropriate or appropriately calculated really depends on the question being asked. While G.D.P. is often used as a summary measure of national wealth, that was never really its purpose. Policy makers were mainly interested in economic changes â€" how well the economy as a whole was doing, quantitatively, this year relative to last year or previous years. They were also interested in timely data so that policies could be adjusted.

One problem with making major conceptual changes to the calculation of G.D.P. and other macroeconomic data is that we have many decades of economic research correlating it with monetary policy, tax policy and a wide variety of other factors. Unless a conceptual change permits creation of a consistent historical time series, it could end up creating a lot of confusion that will do more harm than good.

Who Cares About Fed Funds?

By CASEY B. MULLIGAN

Casey B. Mulligan is an economics professor at the University of Chicago.

New research confirms that the Federal Reserve's monetary policy has little effect on a number of financial markets, let alone the wider economy. Politicians, and a few economists, have been imploring the Federal Reserve to help the economy grow before November. But the effects of monetary policy on the wider economy are small.

The Federal Reserve and especially its regional bank in New York are actively engaged in buying and selling Treasury securities, and the Fed lends money to banks on an overnight basis, at an interest rate called the federal funds rate.

Because interest rates are important to homeowners and businesses, it is tempting to conclude that the Federal Reserve affects the economy by affecting interest rates. But the federal funds rate is only one of many interest rates in the economy, and it is those other interest rates that households and nonbank businesses pay as borrowers and receive as lenders.

Yet a few economists have concluded that today's exceptionally low interest rates on federal funds have turned our economy upside down, so that policies like unemployment insurance that pay people for not working these days actually get people back to work.

A 1983 study by Lars Peter Hansen of the University of Chicago and Kenneth Singleton of Stanford showed that short-term rates on Treasury bills and short-term returns on stocks traded on the New York Stock Exchange had very little correlation with consumer spending. Many empirical studies have confirmed this sort of result (this comparison of inflation-adjusted Treasury bill returns and business sector profitability is a recent example).

Nevertheless, a few economists working on the relationship between short-term interest rates and the economy still assume that consumer spending closely f ollows those rates (see, for example, the bottom of Page 5 of this paper). Their assumption can be useful for exploring other issues, so long as we keep in mind that the close relationship between short-term interest rates and consumer spending is their assumption, rather than a conclusion or an empirical finding.

For a number of reasons, consumer spending, growth of gross domestic product and other important indicators of economic activity might be weakly correlated with the federal funds rate. For one, much economic activity - such as the many employees working for small businesses - occurs separately from financial markets.

It is also easy to exaggerate the linkages between various financial markets. Eugene Fama of the University of Chicago recently studied the relationship between the markets for overnight loans and the markets for long-term bonds. He found that Federal Reserve policies had an obvious effect on the federal funds rate and perhaps also on rates on commercial paper (the market for large short-term loans to businesses).

But Professor Fama found the yields on long-term government bonds to be largely immune from Fed policy changes.

For all these reasons, the right explanation for the failure of our economy to rebound from the 2008-9 recession lies far beyond the market for federal funds.

Answers to Your Questions on Skilled Immigration

By CATHERINE RAMPELL

Last week we asked you to submit questions about skilled immigrants and in particular the H-1B visa program they often work under. Responses from Neil G. Ruiz, Jill H. Wilson and Shyamali Choudhury, who recently wrote about this topic for the Brookings Institution, are shown below.

I've seen many assertions that H-1B workers work at below-market rates and depress wages in the industry over all. Do you have any data that could speak to this issue?
- Chris, Ellicott City, Md.

Under the Immigration and Nationality Act of 1990, employers hiring H-1B workers are required to pay the average wage (or higher) for the occupation and geographical area for which they are hiring. In addition, employers are forbidden to pay H-1B workers less than they pay other workers with similar skills and qualifications.

A 2008 United States government study found that 13 percent of H-1B petitions included some type of fraud, a nd an additional 7 percent had technical violations. Over all, almost 4 percent of petitions were found to be in violation of the prevailing wage requirement.

Fraud was found to be more prevalent among smaller, less established companies and among occupations in accounting, human resources, business analysis, sales, and advertising. Negotiations are currently under way in Congress to beef up H-1B fraud prevention.
 

Do you agree with David Bier from the Competitive Enterprise Institute that “highly skilled foreign workers do not ‘take jobs' - they make jobs” and that the hiring of foreign workers makes the economy more efficient and actually increases opportunities for American workers?
- rational expectations, Westchester, N.Y.

Our report did not look specifically at the impact of high-skilled foreign workers on employment, so we will defer to the work of others in this answer.

William Kerr at Harvard Business School has shown the co nnection between high-skilled immigration and innovation.  His paper demonstrates that inventions, as measured by the number of patents filed, have increased because of contributions of foreign inventors admitted through programs like the H-1B visa program.  It is unclear if there is a direct connection to job creation, but breakthrough patents could have the effect of creating more jobs.

A study by Madeline Zavodny shows that even during the tough economic times of the last few years, immigration on the whole has not hurt the job prospects of native-born Americans and that high-skilled immigrants are correlated with an increase in jobs for natives.

On the other hand, an A.F.L.-C.I.O. study by Paul Almeida argues that programs like the H-1B visa incentivize the displacement of native workers because employers may prefer foreign workers for their lower cost and exploitability.  Ron Hira at the Rochester Institute of Technology asserts that H-1B workers are not complements but are direct substitutes for American workers.

We recognize the concerns and limitations of both sides of this debate.  The challenge for policy makers is to figure how to meet the demand for high-skilled workers by developing an immigration policy that allows the United States to continue to attract the foreign workers that it needs, while at the same time educating and training American workers for these jobs in the near future.

 

I see a lot of concentration of H-1Bs in the Midwest and have read articles noting a counterintuitive trend. Can you elaborate on science, technology, engineering and mathematics, or STEM, H-1B usage outside of Silicon Valley? What are some causes of this trend?
- Angela, CA

The demand for H-1B immigrant workers is not just a high-tech Silicon Valley story; rather it is a story of American employers across the country, in metro areas large and small, requesting high-skilled workers in a variety of occ upations. This includes American manufacturers searching for specific skills in America's heartland.

Although our research shows that San Jose, Calif., home to Silicon Valley, is the No. 1 metropolitan area in demand for H-1B workers relative to its work force size, Columbus, Ind., ranks second.

This is driven mostly by Cummins Inc., an advanced manufacturer specializing in clean technologies for automotive engines headquartered there.  The company has experienced exponential growth over the past several years, even during the recession, and most of its requests for H-1B workers are for engineers.

Other metro areas in the Midwest have a high demand for STEM H-1B workers.  For instance, in Bloomington, Ill., 94.8 percent of all H-1B requests are for STEM occupations, the highest share of all metro areas in the country. These are driven by companies like Patni Americas Inc., which provides information-technology services for State Farm.

Columbus, Ind. , ranks second for STEM share (88.8 percent) and No. 3 is Peoria, Ill., where the heavy equipment maker Caterpillar is headquartered.  Midwestern metros like these are looking to the H-1B visa program to build a skilled labor force.

 

Is the H-1B program just a sham to get cheaper foreign labor? The high tech company I worked for, a Pennsylvania firm, moved at least 3,000 jobs to India, and also brought in H-1Bs, all the while laying off American workers. It appears the goal and motivation of the companies is to cut the cost of American labor by hiring cheaper foreign workers both abroad, where they earn 10 percent, and here at home where they earn 50 percent. With so many American I.T. people unemployed or underemployed, it seems only fitting that the H-1B program should either cease, or at least be limited to genuine, provable shortages instead of fraudulently created shortages to get cheap labor.
- Austin AI, Austin, TX

Outsourcing is the result o f many interrelated factors.  United States immigration policy can play a role by making it difficult for American employers to hire foreigners to work here; some companies work around these restrictions by moving operations to a country where it is easier to bring in foreign workers.

Currently, employers who want to hire an H-1B worker are not required to perform labor market tests to ensure there are no available American workers, but only attest that no American worker has been displaced at their company as a result.  This oversight process facilitates speedy H-1B approvals but relies on post-admission site visits to detect fraud and abuse.

In 2010 in an effort to discourage H-1B dependence, President Obama signed a law adding $2,000 to the fees that employers are required to pay for an H-1B visa if the employer has at least 50 employees in the United States and more than half of them are in H-1B or L-1 nonimmigrant status.

These and other H-1B visa fe es, paid by employers, are used to fund technical skills training and STEM education (at the K-12 and postsecondary levels) in American communities in an effort to train our existing work force to do the jobs that H-1Bs are currently hired to do, as well as help finance fraud prevention and detection.

 

Why can Intel not find suitable American-born STEM workers for their approximately 2,800 openings but Lowell and Salzman report that the American STEM graduates each year exceed the number of openings by a factor of 3?
- John Gary, Boulder Colo.

The years of education demanded by the average American  job is growing, and the educational level of American workers has fallen behind to some extent.  However, there is disagreement about the existence of a shortage of science, technology, engineering and mathematics workers in the United States.

Some argue that the American educational system lacks rigor in these fields and that American students la ck the interest or ability to pursue these occupations to the extent that our companies need them.  Others argue that we are in fact graduating enough students in STEM every year but that they are being diverted to work in other fields.  Meanwhile, American companies that report having trouble finding qualified workers among the existing work force are using the H-1B program to fill job openings.

 

Does the current United States immigration system, which leans heavily in favor of the employers rather than the H-1B workers, actually enable employers to exploit/arm-twist their employees? Would it help to just move to a more transparent points-based system like other developed countries? Why is this being delayed?
- Highly Skilled, NY

H-1B visas are temporary worker visas filed by employers, but they are also dual-intent - meaning that with employer sponsorship, these visas can be converted into green cards for legal permanent residency.  One signific ant concern of this structure is that workers on H-1B visas cannot leave their employer while waiting for green-card sponsorship, which can be over a decade for those coming from countries with significant backlogs, because of green-card quotas.

The point-based systems of other countries, including Canada, Australia and Britain, consider economic and business needs when admitting immigrants, and would represent a significant departure from the current United States emphasis on family reunification.  Current gridlock in Congress makes the possibility of such systemic reform unlikely in the near future, but smaller reforms are gaining ground.

In an important step toward reducing the green-card backlog, the Fairness for High-Skilled Immigrants Act of 2011, which passed the House in November, is active again after Senator Charles E. Grassley, Republican of Iowa, lifted his hold on the legislation last week.

 

I'd like to see it really spelled out exactl y how a company specifies that it needs H-1B visa holders to do a job. Because in the STEM fields older workers are finding it difficult to be rehired if laid off, and some of these oft-cited shortages are not real.
- Banty, Upstate New York

In order to apply for an H-1B visa, employers are required to attest that no American workers were displaced as a result.  There is no actual labor market test required to prove this, and some argue that this process is a relatively weak screening mechanism.  The current system relies on post-issuance enforcement through government visits to employers to verify identities, job descriptions, and salaries of H-1B workers.

In general, the existence of a labor shortage in STEM fields is not established, and there is research both in support of, and against, this possibility.

 

I understand the need to attract educated professionals to the United States to make up for a lack of home-grown ones. However, isn't t his grossly unfair to the countries they come from, where taxpayers invested in educating talented individuals only to see them leave? I am not saying that it should be impossible for educated foreign professionals to work in the United States, just that it should be discouraged. Secondly, importing education reduces the urgency to fix education in the United States, which is the real problem in the end. It hollows out the United States economy and kills the American dream for anyone but educated immigrants. This is a Band-Aid that has hidden a rising problem for decades. Last I checked, Lady Liberty was inviting the poor, the homeless, the wretched refuse to a land where they could better themselves. She wasn't a headhunter.
- endorendil, Belgium

The brain-drain issue is a significant concern for many countries that want to retain their own educated professionals for their labor market needs.  But many countries see the value of sending their citizens to get tr ained in American universities so that they return with higher skills.

For example, the Brazilian president set up a scholarship program to send Brazil's best undergraduate students for a year to study at American universities in science, technology, engineering and mathematics programs.  Most nations understand that a skilled work force is essential to economic growth.  A balance of international immigration policies, educational quality and migration trends plays a large part in determining where high-skilled workers get their education and use their skills.

To train the American work force for highly technical occupations, the fees charged to employers requesting H-1B visas are distributed by the Employment and Training Administration of the Department of Labor and the National Science Foundation to local areas.  This provides an opportunity for the existing work force to upgrade their skills so that they can be hired for jobs that employers seek through t he H-1B visa program.  These H-1B visa fee programs are one method for providing short- and long-term training so that American employers do not have to rely on hiring high-skilled foreigners.