NEW YORK – Although the jobs market has improved recently, it remains “far from normal,” and there are no guarantees that the pace of improvement will be sustained, therefore monetary policy should remain accommodative, Federal Reserve Board Chairman Ben Bernanke told the National Association of Business Economists on Monday.
“A wide range of indicators suggests that the job market has been improving, which is a welcome development indeed,” he said, according to prepared text of his remarks, released by the Fed. “Still, conditions remain far from normal, as shown, for example, by the high level of long-term unemployment and the fact that jobs and hours worked remain well below pre-crisis peaks, even without adjusting for growth in the labor force. Moreover, we cannot yet be sure that the recent pace of improvement in the labor market will be sustained.”
The recent growth, Bernanke said, could be “ at least in part, a reversal of the unusually large layoffs that occurred during late 2008 and over 2009. To the extent that this reversal has been completed, further significant improvements in the unemployment rate will likely require a more-rapid expansion of production and demand from consumers and businesses, a process that can be supported by continued accommodative policies.”
Further, Bernanke said, cyclical, not structural, factors led to the “substantial” rise in long-term unemployment during the recession. “If this assessment is correct, then accommodative policies to support the economic recovery will help address this problem as well.”
It is important to watch long-term unemployment. “Even if the primary cause of high long-term unemployment is insufficient aggregate demand, if progress in reducing unemployment is too slow, the long-term unemployed will see their skills and labor force attachment atrophy further, possibly converting a cyclical problem into a structural one,” Bernanke warned. “If this hypothesis is wrong and structural factors are in fact explaining much of the increase in long-term unemployment, then the scope for countercyclical policies to address this problem will be more limited. Even if that proves to be the case, however, we should not conclude that nothing can be done. If structural factors are the predominant explanation for the increase in long-term unemployment, it will become even more important to take the steps needed to ensure that workers are able to obtain the skills needed to meet the demands of our rapidly changing economy.”
