US / Fed Has Failed to Lower Unemployment

 (Chosen excerpts by Job Market Monitor) – Fed Chairman Ben Bernanke continues to believe that more aggregate demand is all that is needed to put back to work the unemployed, underemployed and discouraged. About 1.65 million more people would have jobs if the unemployment rate dropped to the Fed’s trigger level of 6.5 percent. Even though the Fed hasn’t specified a full-employment rate, past discussions suggest it believes that 5 percent to 6 percent joblessness is possible without straining labor markets. A 5.5 percent rate would add an additional 1.6 million employees, for a total of 3.2 million…

Then there are those on the sidelines because of the huge decline since 2000 in the labor-participation rate, the percentage of the total population age 16 and above who are in the labor force, meaning they are employed or have looked for a job within the past four months. If the labor force participation rate were the same as in February 2000, the pool would be larger by 9.5 million people.

Because the unemployment rate in 2000 was 4.1 percent, this implies 9.11 million more jobholders. And at that rate, an additional 5.4 million people would be employed, for a total of 14.5 million. That’s a lot of workers to absorb, even with the annual real gross domestic product growth of about 3.5 percent that should resume in five years or so when global deleveraging is completed. And that pace of growth surpasses recent economic performance. Since deleveraging began in the fourth quarter of 2007, annual growth has averaged just 0.6 percent; it has been 2.1 percent since the recovery began in the second quarter of 2009, and 1.7 percent since the previous cyclical peak in the first quarter of 2001.

If real annual GDP growth averages about 3.5 percent in the years ahead and productivity growth averages the 2.5 percent of the past decade, employment would increase about 1 percent a year, or by 1.44 million, at current levels. But the pool of 14.5 million available workers would be augmented by the continuing increase in the working-age population of about 2.2 million annually, exceeding the 1.44 million new jobs. By these calculations, the pool of people who could work, by early 2000 standards, would chronically rise.

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via Why Fed Has Failed to Lower U.S. Unemployment – Bloomberg.