|By BINYAMIN APPELBAUM|
On Monday, she made their stories the centerpiece of the first public speech in her new job, delivering a strong statement about her concern over unemployment, her conviction that the Fed has the power to help, and her determination to do so.
“It is my hope,” Ms. Yellen told a conference hosted by the Federal Reserve Bank of
The speech offered a rebuttal to economists, including some Fed officials, who see evidence that the central bank is approaching the limits of its ability to improve labor market conditions. It also leaned against recent indications that Fed officials might be considering a faster retreat from their economic stimulus campaign.
Ms. Yellen said that even now, almost five years after the official end of the Great Recession, it remains harder for Americans to find jobs than in the midst of a typical downturn. For those who are working, wages are rising more slowly than usual.
“There remains no doubt that the economy and the job market are not back to normal health,” Ms. Yellen said. “The recovery still feels like a recession to many Americans and it also looks that way in some economic statistics.”
She said the Fed’s commitment to economic stimulus remained “strong.”
Ms. Yellen’s predecessors,
Ms. Yellen’s speech also was a departure from the typically dry and abstract style of her predecessors and most of her colleagues. Fed officials rarely discuss individual experiences in their speeches, preferring to talk about trends and patterns.
“I have described the experiences of Dorine, Jermaine and Vicki because they tell us important things that the unemployment rate alone cannot,” Ms. Yellen said. “They are a reminder that there are real people behind the statistics, struggling to get by and eager for the opportunity to build better lives.”
The core of Ms. Yellen’s speech was devoted to a central issue confronting Fed officials as they seek to calibrate their efforts to stimulate the economy. Employment dropped sharply during the recession and has barely recovered. The unemployment rate has fallen because it counts only people who are looking for work, and a lot of people have given up entirely.
So the question is how much more monetary policy can do.
There is always some “natural” unemployment as people change jobs. Recessions can also increase “structural” unemployment if people who lose jobs lack the skills to find new ones, and some economists see evidence that much of current unemployment falls in this category.
But Ms. Yellen defended the use of continuing monetary stimulus, citing the “slack” in the economy or the portion of unemployment that can be fixed by stronger growth.
Ms. Yellen said she saw layers of evidence supporting the conclusion that much of the current weakness in the job market was cyclical and fixable. The share of workers quitting jobs is unusually low, suggesting a paucity of better opportunities. The share of workers with part-time jobs is unusually high. And wages for all workers are rising very slowly, because an abundant supply of labor is limiting the pressure on employers to pay more.
The most obvious evidence of slack is the unemployment rate, which at 6.7 percent in September still stood about two percentage points above its pre-recession low.
Long-term unemployment accounts for most of the difference, and a growing body of research suggests that many of those people may never find new jobs. A recent paper by
Ms. Yellen on Monday related the story of
Yet Ms. Yellen has rejected as “tremendously premature” the conclusion that the Fed should disregard long-term unemployment in adjusting its stimulus campaign. On Monday she said again that she did not see “clear indications” that long-term unemployment would, by itself, prevent people from finding new jobs. Indeed, she said she expected that as the economy improved, many people who had stopped looking for work would also return to the labor market, and also find jobs.
Jan Hatzius, chief economist at
Mr. Hatzius also wrote that even if short-term unemployment were the relevant measure of inflationary pressures, the Fed still has a responsibility to maximize employment. “If anything, one could argue that Fed officials will want to put more weight on long-term unemployment than on short-term unemployment in gauging how close they are in meeting their employment goal, given the evidence that long-term unemployment leaves lasting scars on workers and families,” he wrote.
Ms. Yellen also sought to highlight the importance of education in improving job prospects. She began her
She visited a second community college after her Monday speech, touring a manufacturing classroom at
Ms. Yellen asked one recent graduate,
“Depends on how the U.S. does,”
“Well, we’re doing our best,” Ms. Yellen responded.
She reiterated that thought after a round-table discussion with the students and with some of the local employers who hire workers from the community college.
“We’re going to try to make sure that we have a strong enough economy that firms like yours are going to keep on hiring people,” she said.
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