This being Labor Day I thought it might be a good time to take a look at Federal Reserve Chair Janet L. Yellen’s recent musings on the health of the job market.
She spent a fair bit of time in her speech at an economic conference in Jackson Hole, Wyo., talking about “slack” — the difference between the jobs we have and the ones we want.
Yellen said the employment picture since the Great Recession is very different from those that followed other downturns. She footnotes a paper by Princeton economist Henry S. Farber who found that 16 percent of those aged 20-64 lost a job between 2007-2009. Less than 50 percent of those who lost jobs were employed in 2010, a much smaller fraction than in earlier periods. About 20 percent of those who found jobs were in part-time jobs, a far higher fraction than in the past. The people who found new jobs “earned on average 17.5 percent less on average on their new jobs than on the lost job.”
And, as Farber notes, the consequences on families are probably greater than those statistics might indicate. For instance, people who lose full-time jobs often give up health insurance and other important benefits.
There have been other changes. The number of people in the workforce peaked in 2000, well before the recession. But the number leaving jobs accelerated with the downturn. More boomers retired. Young people stayed in school longer. Some people just gave up looking.
That decline in what’s known as workforce participation has started to ebb nationally as the economy improves, but Yellen said there is still a question of whether the lower baseline today is a temporary cyclical phenomena, sure to reverse, or a more permanent structural one.
Then, there’s something Yellen calls the “phenomenon of ‘polarization’” — by which she means the disappearance of so-called middle-skill jobs. Also, a lot of people in part-time jobs want full-time ones, but much of the hiring is in the services sector, which makes greater use of temps and hourly wages.
“At nearly 5 percent of the labor force, the number of such workers is notably larger, relative to the unemployment rate, than has been typical historically, providing another reason why the current level of the unemployment rate may understate the amount of remaining slack in the labor market,” Yellen said.
Yellen’s sense of how to deal with that slack will undoubtedly influence what policy levers the Fed pulls in the future.
Those levers bear special attention in the D.C. area, where we are entering our own cyclical decline — a soft job market brought on by a slowdown in federal spending — just as the rest of the nation revs up.