Economic Reports

Zero Inflation May Actually Be Harmful, Study Argues

Getting rid of all inflation, a passion of some economists and members of both major political parties, may actually reduce jobs and output.

That's the conclusion of three Brookings Institution economists, who say they conducted thousands of simulations to test the impact of zero inflation.

"The costs would be a permanent reduction in gross domestic product of 1 to 3 percent and a permanent drop in employment by the same amount," they conclude. That means a loss of billions of dollars of production and many tens of thousands of jobs.

Supporters of price stability disagree. Former Federal Reserve official Wayne Angell argues that inflation at today's 2.5 to 3 percent rate discourages savings and raises interest rates. Mr. Angell would like to see the Fed's only goal be to snuff out inflation - every last bit of it. As of now, the Fed is asked to pursue a blend of goals: maximum employment, stable prices, and moderate long-term interest rates.

Why does zero inflation harm the economy? Because companies are reluctant to cut wages, say the Brookings scholars.

In good times and bad, they reason, some companies do better than others. Wages need to adjust to accommodate these differences. By holding wages steady in a time of modest inflation, companies doing poorly can effectively cut salaries. In a zero-inflation world, they would be unlikely to cut pay. That would prevent them from hiring more workers.

-- Staff, Associated Press

Too busy to play: CEOs use just half of vacation time

Chief executive officers are granted more vacation time, on average, than other executives or workers, yet they tend to use just half of that time, finds a survey of 50 human-resource departments at Fortune 500 corporations. Other senior executives used 75 percent of their vacation days, while entry-level workers use 98 percent of their days, according to A.T. Kearney Executive Search in Chicago.

-- Staff