Americans who have dropped out of the labor market could remain permanently unemployed if the Federal Reserve does not act aggressively enough to boost the job market, a top Federal Reserve official argued in a recent interview.

Boston Fed President Eric Rosengren said that he believes a stronger recovery would encourage people who have given up looking for work to return to the labor force. But the longer the economy muddles along, the greater the chance that those workers’ skills will atrophy. That could threaten the foundations of the economy, he said.

Eric Rosengren, president of the Federal Reserve Bank of Boston (Brendan Hoffman/Bloomberg) Eric Rosengren, president of the Federal Reserve Bank of Boston (Brendan Hoffman/Bloomberg)

“Some of the things that started out being cyclical are in danger of becoming structural if we don’t act aggressively to make sure the economy comes back in a reasonable time period,” he said.

In the aftermath of the recession, economists have debated whether the steep decline in unemployment signaled a fundamental restructuring of the country’s labor market. Will  the unemployed be able to find jobs once the economy improves, or will their skills and abilities fall short of the type demanded in a 21st century economy?

Rosengren noted the plunge in the unemployment rate for workers who didn't graduate from high school. They had been laid off in droves as the collapse of the housing market rippled through the construction industry, pushing the jobless rate for low-skilled workers to nearly 16 percent. The percentage of those unemployed workers is still higher than the national average; the number has come down faster for workers with more education. But there is a caveat: The longer that workers are out of the job market, the less likely they are to return. They fall behind in skills, and their professional networks break down. Some may be stigmatized simply for being unemployed.

The government’s March jobs report put the plight of the long-term unemployed in sharp relief. Hiring slowed dramatically last month, and the percentage of working-age adults who are not in the job market dropped to the lowest level since 1979. In the interview, Rosengren said the economy must reverse that trend to get the country back to full employment.

Rosengren is a voting member on the Fed’s powerful policy-making committee this year, and he has been a major proponent of its easy-money stance. He was one of the key advocates for adopting economic thresholds to guide monetary policy. Last year, the Fed promised it would keep interest rates near zero at least until the unemployment rate reaches 6.5 percent and inflation remained below 2.5 percent. He is also strongly supports the central bank's $85 billion in monthly quantitative easing.

New research presented at the Boston Fed’s annual conference last week suggested that the central bank would need to keep stimulating the economy until the jobless rate fell below its natural rate in order to entice discouraged workers to start looking for jobs again. The Fed has estimated the country’s natural rate of unemployment as between 5 percent and 6 percent.

In the interview, Rosengren said he believes the Fed will likely need to buy bonds through December. He said he might consider scaling back the amount of purchases if the economy improves in the second half of the year -- but that he also would be open to boosting the amount if things go south.

“I’m not closing the door on it,” he said. “We should move the asset purchases either up or down depending on economic conditions.”

Rosengren said he believes that, in hindsight, the Fed should have been quicker to begin its aggressive easing policies to stimulate the economy. And now he doesn’t want to make the mistake of withdrawing from that policy too early.

“You can make mistakes when you’re trying to get the accommodation to be removed,” he said. “But I think we have the tools. If we have the judgement, we’ll have to see.”