Monday, March 31, 2014

Yellen: Weak Job market will require lots of help for "some time"

Speaking at the National Interagency Community Reinvestment Conference in Chicago on Monday, Fed Chairman Janet Yellen asserted that the abysmal US job market will likely remain in an egregious state for some time, hence, she said the Federal Reserve's current policies of massive bond-buying and ultra-low interest rates is "still needed, and will be for some time."

The following are excerpts from Yellen's address:
The recovery still feels like a recession to many Americans, and it also looks that way in some economic statistics... In some ways, the job market is tougher now than in any recession. The numbers of people who have been trying to find work for more than six months or more than a year are much higher today than they ever were since records began decades ago...

More than seven million people... are working part time but want a full-time job. As a share of the workforce, that number is very high historically... There are real people behind the statistics, struggling to get by and eager for the opportunity to build better lives...

One reason why I believe it is appropriate for the Federal Reserve to continue to provide substantial help to the labor market... is because of the evidence I see that there remains considerable slack in the economy and the labor market... Slack means that there are significantly more people willing and capable of filling a job than there are jobs for them to fill.

During a period of little or no slack, there still may be vacant jobs and people who want to work, but a large share of those willing to work lack the skills or are otherwise not well suited for the jobs that are available. If unemployment were mostly structural [and not due to a considerable slack in the economy and the labor market], if workers were unable to perform the jobs available, then the Federal Reserve’s efforts to create jobs would not be very effective.

Now let me explain why I believe there is still considerable slack in the labor market, why I think there is room for continued help from the Fed for workers... One form of evidence for slack is found in other labor market data, beyond the unemployment rate or payrolls... For example, the seven million people who are working part time but would like a full-time job..., the existence of such a large pool of “partly unemployed” workers, is a sign that labor conditions are worse than indicated by the unemployment rate. Statistics on job turnover also point to considerable slack in the labor market...

Firms... have been reluctant to increase the pace of hiring. Likewise, the number of people who voluntarily quit their jobs is noticeably below levels before the recession; that is an indicator that people are reluctant to risk leaving their jobs because they worry that it will be hard to find another. It is also a sign that firms may not be recruiting very aggressively to hire workers away from their competitors.

A second form of evidence for slack is that the decline in unemployment has not helped raise wages for workers as in past recoveries. Workers in a slack market have little leverage to demand raises. Labor compensation has increased an average of only a little more than 2 percent per year since the recession, which is very low by historical standards.... [Editor's Note: The egregious economy under Obama has resulted in a low increase in wages, hence Obama has decided to mandate an increase in the minimum wage to make up for his own ineptitude.]

Labor market slack has also surely been a factor in holding down compensation. The low rate of wage growth is, to me, another sign that the Fed’s job is not yet done.

A third form of evidence related to slack concerns the characteristics of the extraordinarily large share of the unemployed who have been out of work for six months or more. These workers find it exceptionally hard to find steady, regular work...

The concern is that the long-term unemployed may remain on the sidelines, ultimately dropping out of the workforce. But the data suggest that the long-term unemployed look basically the same as other unemployed people in terms of their occupations, educational attainment, and other characteristics. And, although they find jobs with lower frequency than the short-term jobless do, the rate at which job seekers are finding jobs has only marginally improved for both groups. That is, we have not yet seen clear indications that the short-term unemployed are finding it increasingly easier to find work relative to the long-term unemployed...

A final piece of evidence of slack in the labor market has been the behavior of the participation rate – the proportion of working-age adults that hold or are seeking jobs. Participation falls in a slack job market when people who want a job give up trying to find one... [The participation rate] now stands at 63 percent, the same level as in 1978 [when Jimmy Carter was President], when a much smaller share of women were in the workforce. Lower participation could mean that the 6.7 percent unemployment rate is overstating the progress in the labor market. ["Could mean?!" Heh....]

Based on the evidence, my own view is that a significant amount of the decline in participation during the recovery is due to slack, another sign that help from the Fed can still be effective.

Since late 2008, the Fed has taken extraordinary steps to revive the economy... There is little doubt that without these actions, the recession and slow recovery would have been far worse...

For the many reasons I have noted today, I think this extraordinary commitment is still needed and will be for some time, and I believe that view is widely shared by my fellow policymakers at the Fed

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