If Fed vice chair Janet L. Yellen is confirmed to lead the nation’s central bank, she will be poised to take on the unemployment problem that has dogged the U.S. economy for the past five years. Yellen moved a step closer to that position during her relatively non-controversial confirmation hearing before the Senate banking committee on Thursday.
As chair of the Board of Governors of the Federal Reserve, Yellen would wield the power to enact policies that meet the Fed’s mandate to achieve maximum employment, stable prices, and moderate long-term interest rates.
Unemployment was a main focus of the hearing, with both Democratic and Republican senators expressing concern about the more than 11 million Americans who are out of work. Among the unemployed, 4 million are counted as long-term unemployed because they’ve been out of a job for more than six months, according to the most recent data from the Department of Labor.
Tackling the high rate of long-term unemployment is one of Yellen’s main priorities. In response to a question from committee chairman Sen. Tim Johnson (D-S.D.), Yellen said that “A disproportionate share of that unemployment takes the form of long spells of unemployment. Around 36 percent of all those unemployed have been unemployed for more than six months. This is a virtually unprecedented situation.”
She added that these long spells of unemployment are particularly painful for households, not only because of the loss of income, but also because of the strains that unemployment places on families and marriages.
These words echo those of a trio of Fed economists who recently wrote that policy makers should pay increased attention to the problems caused by long-term unemployment. They warned that the U.S. risks suffering from a period of low growth and high unemployment that characterized the European economies in the latter part of the 20th century.
In a response to Sen. Richard Shelby (R-AL) who asked about the plight of workers who have given up looking for work because they are “frustrated by the whole system,” Yellen agreed that broader measures of unemployment are much higher than the official 7.3 percent unemployment rate. Part-time employment among people who would prefer full-time jobs or more work are at unprecedented levels, according to Yellen.
She added that the actual unemployment rate of 7.3 percent doesn’t reflect discouraged workers who have given up looking for work because the jobs don’t exist. The unemployment rate would rise to 13.8 percent if it included workers who are only marginally attached to the work force plus those who are working part-time for economic reasons.
Yellen emphasized that the economy has also shown a significant decline in labor force participation. This rate has fallen to 62 percent from the 66 percent rate of participation that held before the recession began. “We have all too many people who appear to have dropped out of the labor force because they’re discouraged,” Yellen said.
In many ways, the overall unemployment situation is worse than the official figures indicate, especially for women. Reflecting the “discouraged worker” problem that Yellen mentioned, nearly 350,000 women dropped out of the labor force in the last month. More than 3 million women would like a job while another quarter of a million got discouraged and stopped looking for work in October, according to official data.
Senator Heidi Heitkamp (D-N.D.) asked Yellen what level of unemployment would reflect the Fed’s goal. Yellen responded that the most recent survey of members of the Federal Open Market Committee indicated that a five to six percent unemployment rate would be consistent with full employment.
While unemployment is a problem for both men and women, a recent report by the Economic Policy Institute found that although women fared better than men in the great recession that began in 2007, in the sense that more men lost their jobs than women did, during the economic recovery, men are seeing stronger gains in employment than women are. For example, while both men and women saw employment gains in the health care and social assistance sector, male employment grew by 50 percent more than female employment. As the author of the report, Hilary Wething explained, “While the jobs gap for men is larger than it is for women, men are nevertheless seeing strong gains than women within most industries.”
Throughout her hearing, Yellen repeatedly stressed that a strong economy would solve many of the problems — with unemployment perhaps being the biggest problem today — the U.S. economy faces. In work with her Nobel-prize winning husband George Akerlof, who attended her confirmation hearing, Yellen argued that the Fed must take into account the high costs to the economy when people haven’t worked for sustained periods. This is particularly true when inflation, which is one of the Fed’s other areas of attention, remains under the Fed’s target rate of about 2 percent.
Yellen’s stance on unemployment makes her an ideal economist to lead the Fed.