Today Federal Reserve Chair Janet Yellen stated in her opening statement to the House Committee on Financial Services that,
“The unemployment rate has fallen nearly a percentage point since the middle of last year and 1-1/2 percentage points since the beginning of the current asset purchase program. Nevertheless, the recovery in the labor market is far from complete. The unemployment rate is still well above levels that Federal Open Market Committee (FOMC) participants estimate is consistent with maximum sustainable employment. Those out of a job for more than six months continue to make up an unusually large fraction of the unemployed, and the number of people who are working part time but would prefer a full-time job remains very high. These observations underscore the importance of considering more than the unemployment rate when evaluating the condition of the U.S. labor market.”
This assessment underscores the issues with todays job market. America has high long-term unemployment and a loose employment market where many are giving up looking for work or settling for part-time employment. As the official rate (U-3) has shown strong improvement, other measures of unemployment have not fared as well. The U-5 unemployment rate, which is the official unemployment rate plus marginally attached and discouraged workers, is 1.5% higher than the official rate at 8.1%. The typical U-5 rate should be within 1% of the official unemployment rate. The problem gets worse when adding in the workers that are part-time but want a full-time position, also known as the U-6. This rate is 6.1% above the official unemployment rate at 12.7% and it typically should be about 4% above the official rate. This divergence is best illustrated by this graph of U-6 superimposed on the official unemployment rate:
Fed Chair Yellen believes that as long as inflation rates stay below 2.5% and unemployment is above the Federal Reserve expectations of full employment, which she stated was between 5% and 6% then some form of quantitative easing would stay in place to help the employment market normalize. The progress in normalizing employment can be aided with action from Congress. In response to Rep. William Lacy Clay (D-MO) question on what Congress can do to lower unemployment, Fed Chair Yellen said “Monetary policy is not a panacea and I think it is absolutely appropriate for Congress to consider other measures in order to foster the same goals.”
Congress has a chance to act with the full support of the Federal Reserve to enact common sense policies that will help end our employment and economic crisis. There are plenty of plans out there for Congress to choose from— from conservatives, moderates, and liberals. Tell Congress they need to Fix the Jobs.