Economic Letter

In the last 25 years, the wage gap in the U.S. between highly skilled and less skilled workers has widened noticeably. For example, in 1975 the gap in average annual earnings between high school graduates and non-graduates was 26%; by 1999, the gap was 52%.

This Economic Letter discusses a topic that at first glance appears to be boring and technical but that in fact turns out to be quite important: the proper interpretation of chain-weighted data. To illustrate, consider this simple question: What is the growth rate of real GDP?

Two major trends affecting the structure of the banking industry since the mid-1980s have been tremendous consolidation and the liberalization of interstate banking. Consolidation has unambiguously increased concentration at the national level.

Health care spending is growing rapidly in the U.S. and, at 14% of GDP, is much larger than such spending in other industrialized countries. The increase in spending reflects not only changing U.S. demographics but also the use of new, and often costly, treatments, as well as institutional factors relating to health insurance and the structure of the health care industry.

Over the 1990s, public and private international borrowers shifted the composition of their external financing—instead of relying primarily on loans from a syndicate of a few banks, they turned to issuing bonds. This has resulted in many more creditors of various kinds holding claims on sovereign debt in the forms of different debt instruments with different time horizons.

The recent wave of financial crises in emerging markets—Mexico in 1994-1995, Asia in 1997-1998, Russia in 1998, and Argentina in 2001—has exacted a considerable toll in terms of lost output and welfare and at times even posed a threat to the stability of world financial markets. As a result, many policymakers and economists have focused on the lessons to be learned from these experiences—lessons both in how better to prevent crises in the first place and in how to manage crises once they occur.

Since the late 1970s, China has undertaken economic reforms that have liberalized agricultural production, allowed the growth of a dynamic private sector, and gradually opened the economy to international trade and foreign direct investment. As a result, China stands as one of the fastest growing economies in the world.

The Standard & Poor’s (S&P) 500 stock index closed at an all-time high of 1527 on March 24, 2000. Since then, the index has declined by about 28% to 1097 as of May 14, 2002, roughly where it was four years ago.

Bank supervisors engage in extensive monitoring of banking organizations in order to enforce regulations and to guard against systemic risk. In the United States, primary responsibility for monitoring bank holding companies (BHCs) falls to the Federal Reserve.

When it comes to compromise, we can take comfort in the old saying, “half a loaf is better than none.” But when it comes to legislation on deposit insurance reform now before Congress, that old saying takes a new twist: “half a loaf is even better than a whole loaf.”