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Healthy inflation? Inflation in the healthcare industry vs. general CPI

Some components of the consumer price index have consistently, over several decades, risen faster than the rest. This blog recently discussed education as one such component. The components of the CPI devoted to medical care have also seen faster price increases than the rest of the basket. Going back as far as the series are available, since 1948, the price of medical care has grown at an average annual rate of 5.3% while the entire basket, headline CPI, has grown at an average annual rate of 3.5%. In the past 20 years, in the regime of stable inflation, headline CPI has grown at an average annual rate of 2.2%, whereas the price level of medical care has grown at an average annual rate of 3.6%—about 70% faster.

The graph above shows the two time series. Besides the difference in their levels, it’s also notable how much less cyclical medical care inflation is. Although overall CPI inflation dips during recessions, medical care inflation stays steady.

The implication of these two features is far reaching: It’s symptomatic of the increasing share of income the U.S. spends on medical care. Beyond macro trends, the features of these two series themselves have policy implications. Indeed, indexing government healthcare budgets to overall CPI rather than medical care prices has implications for spending in real terms. This gap could also widen during recessions, when government help may be most in demand.

The CPI is intended to measure the price of goods consumers purchase directly, and therefore the medical care subset is actually measuring only the prices of out-of-pocket expenses. For healthcare, however, there’s a great deal of other spending going on. And the inflation rate of that spending is something a policymaker might need to know. Luckily, the BEA puts together a more holistic price index for healthcare spending—the health expenditures price index—which we add in the graph below. Although the history of this series is shorter, this measure of healthcare prices is still rising considerably faster than headline CPI: In 2001-2013, this measure of healthcare inflation rose almost 4% per year, whereas headline CPI rose 2.3% in this period and the other healthcare CPI rose 3.9%.

How these graphs were created: For the first graph, search for “Consumer Price Index Medical.” In the “Edit Graph” tab, convert the units to “Percent Change from a Year Ago.” Then use the “Add Line” feature to search for “Consumer Price Index All Items.” Add this line and again check that its units are the same. (FRED does this automatically, but it doesn’t hurt to check.) These series are both also available as chained indices, but for a shorter period. For the second graph, add to the first another line by searching for “Health Expenditures Price Blended Account.” Then restrict the period to show the entirety of the new line.

Suggested by David Wiczer.

View on FRED, series used in this post: CPIAUCSL, CPIMEDSL, HLTHSCPIBLEND

Women worldwide in the labor force How does the participation of women relate to a nation’s overall employment ratio?

A nation’s employment-to-population ratio can provide an indicator of the health of its labor markets—specifically, how much of the workforce participates in the formal economy. The map shows worldwide employment-to-population ratios in 2016, where lighter-colored countries have higher employment ratios. The data reflect the proportion of the working age population in various countries employed during the reference period. However, the World Bank advises that nations vary in their definitions of working age, whether they include armed services personnel and the institutionalized in their counts, and how women view their employment status based on cultural norms. The United Nations reports that, globally, women’s involvement in the labor force is only 50%, whereas men’s is 77%; yet, women work longer hours when unpaid work is accounted for—which it is not in employment-to-population ratio data. Given all of these complexities, comparisons of employment ratios between nations have their limitations.

Overall, the nations with the highest ratios of employed individuals to the overall population tend to be smaller, such as those in Southeast Asia and Central Africa, with many reporting ratios over 70%. Nations surrounding the Mediterranean Sea have some of the lowest employment ratios, most below or near 40%. While purely economic factors may explain some of the discrepancies, a look at other employment-related indicators may shed some light on the factors at play.

Indeed, nations with high employment ratios also have some of the highest female labor force participation rates (as a percentage of the total female population), according to the World Bank. For example, in Uganda, where the employment-to-population ratio stood at 83.05% in 2016, the third highest worldwide, the female labor force participation rate was 82.33%, the 5th highest worldwide. The reverse also appears to be true: Many nations with low ratios, especially in North Africa and the Middle East, have far lower labor force participation rates for females than the rest of the world.

Comparisons of the GeoFRED and World Bank maps illuminate a clear correlation, which can be analyzed using a linear regression. For all nations with 2016 data on both the employment ratio and the female labor force participation rate, the correlation coefficient between the two variables is 0.82, meaning if one is high in a country, the other is very likely to be high as well. While the relationship may seem obvious, it has important implications for developing economies seeking to increase their overall employment ratio.

How these maps were created: In GeoFRED, select “Build New Map,” click “Tools,” and search for “Employment” in the data menu.

Suggested by Maria Hyrc.

A review of labor market conditions

The U.S. unemployment rate stands at 4.3 percent, a value slightly lower than at the peak of the expansion in 2007. This is a sign of a very healthy labor market. The question is to what extent do other indicators of labor market health paint a similar picture.

FRED has recently added several data series that capture various measures of labor market tightness. A very tight labor market means that employers have a harder time filling open positions because most workers are employed and fewer are looking for jobs. There are several ways to capture labor market tightness: In the following graphs, we present a few of them and compare their evolution before and after the previous recession.

The first graph shows the vacancy-to-unemployment ratio and the quits rate. The blue line (left axis) is the number of vacancies per unemployed worker. When the economy enters recession, this measure declines as the number of unemployed workers increases and the vacancies per unemployed worker decrease. A low number of vacancies per unemployed worker is a sign of slack in the labor market. After the 2007-09 recession, this ratio increased at a slow pace until 2014, when it increased sharply and surpassed its pre-recession high. The red line (right axis) is the number of quits per employed worker. Similar to the vacancy ratio, this indicator declines in recessionary periods. Within the past few months the quit rate has recovered to pre-recession levels.

The second graph shows the mean level of vacancy duration and an index of recruiting intensity per vacancy. In a tight labor market, employers will have to look harder, or more intensely, to fill open positions as the number of unemployed candidates is reduced. Similarly, vacancy durations will be higher as recruiting efforts take longer in a tight labor market. Since the 2007-09 recession, vacancy durations have surpassed pre-recession levels, reaching a series high of 29.6 business days per vacancy in April 2016. The recruiting intensity index is close to its pre-recession level, but has not increased as quickly as vacancy durations.

Overall, the different indicators of labor market conditions analyzed here point to a healthy recovery of the U.S. labor market.

How these graphs were created: Top graph: Search for “Vacancy to Unemployment Ratio” in FRED and graph the series with the copyright symbol in the title (copyrighted by DHI Group Inc. and Dr. Steven J. Davis). Then click the orange “Edit Graph” button and add a line using the middle button on the top of the menu that appears to the right. Search for “Quits Rate” in the box and add the series with the copyright symbol. Finally, click the “Format” button on the menu and below Line 2 select the option to change the y-axis position to the right. Bottom graph: Repeat these steps, but use DHI-DFH Mean Vacancy Duration and DHI-DFH Index of Recruiting Intensity per Vacancy.

Suggested by Maximiliano Dvorkin and Hannah Shell.


Regional price parities How the cost of living differs across states


A well-known fact in the ordinary business of life is that the value of money doesn’t stay the same: The amount of goods and services you can buy with $100 today is far less than what you could buy 30 years ago. A somewhat similar comparison can be made about the purchasing power of $100 in different places. The amount of goods and services you can buy in a developed country, such as the United States, is far less than what you can buy in a developing country, such as India. Here, we analyze this latter phenomenon but within the United States.

Regional price parities (RPPs) measure the differences in the price levels of goods and services across states and metropolitan areas for a given year. RPPs are expressed as a percentage of the overall national price level for each year, so RPPs higher than 100 represent state prices higher than the national average and vice versa. The map shows the price parities in 2015 for each U.S. state. In general, price levels are lower in the middle section of the country and get higher on the east and west coasts.

In 2015, Hawaii’s RPP (118.8) was higher than that of any state. The other locations with the highest RPPs were District of Columbia (117.0), New York (115.3), California (113.4), and New Jersey (113.4). Kentucky (88.6), South Dakota (88.2), Arkansas (87.4), Alabama (86.8), and Mississippi (86.2) had the lowest RPPs among the states. States with RPPs closest to the national average price level were Vermont (101.6), Delaware (100.4), Illinois (99.7), Florida (99.5), and Oregon (99.2).

RPPs are important because they help inform the purchasing power behind a person’s income in different areas of the country. For example, an income of $47,520 in Hawaii has the equivalent purchasing power of an income of $36,480 in Mississippi because both of these incomes divided by the state’s RPP equal $40,000.

How this map was created: In GeoFRED, click the green “Build New Map” button in the top right corner of the page. Next, click the gray tools menu in the top left corner of the map. Set the region type to “State” and search for “Regional Price Parities” on the data dropdown menu. Select the series “Regional Price Parities: All Items.” Make sure the frequency is set to annual, units are index values, and the date is 2014.

Suggested by Maximiliano Dvorkin and Hannah Shell.

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