Local Fed Chair Sees Slow Workforce Recovery

Story by Brad Allen

While the Great Recession technically came to an end in June of 2009, the pace of recovery is painfully slow for many Americans. The 12.5 million people out of work and 7.9 million counted as underemployed by the U.S. Bureau of Labor Statistics are feeling the impact of the financial crisis three years later.

Despite continued high unemployment, the current U.S. job market may be close to the maximum employment rate that monetary policy can achieve, according to Minneapolis Federal Reserve Bank President Narayana Kocherlakota.

Speaking at the Economic Club of Minnesota on May 10, Kocherlakota said the economy has become less efficient in matching workers with available jobs coming out of the recent financial crisis.
Even though the unemployment rate has been slowly declining since the end of the recession and stood at 8.1 percent nationally at the end of April, Kocherlakota said it is possible that the current recovery will be more drawn out than we are used to seeing.

He pointed to falling labor participation rates, particularly for workers between the ages of 25 and 54, as a sign that the job market is not recovering as rapidly as it had coming out of previous recessions.

"So in the postwar period the deterioration we saw during recessions reversed itself in reltaively short periods of time after the recession itself," he said.

Kocherlakota compared the shape and pace of the current U.S. economic recovery to the experience of Sweden in the early 1990s following the “triple crisis” that hit its financial banking and currency sectors. The resulting higher unemployment and lower labor force participation rates in the Swedish labor market have persisted and are similar to changes seen in the U.S. labor market since 2007, Kocherlakota said.

"When you look at other countires ... Sweden in particular .. after their triple crisis we had not seem the same kind of reversal."

The recent rise in inflation rates and continued slow decline in unemployment indicate that the “maximum employment” the FED is required by Congress to support may be close to where it currently stands.
As a result, the Minneapolis Fed president said that policy makers “are confronted with an unusually wide range of possibilities about what constitutes ‘maximum employment.’

"There's no difinitive answer to these questions," Kocherlakota said. "There's a range of possibilities and you have to confront that range of possibilities as a policymaker. I'm trying to be transparent about the uncertainties I face as a policymaker."