Ben Bernanke: Long-Term Unemployment Crisis Altering Job Market For The Worse

Federal Reserve Chairman Ben Bernanke said Tuesday that record levels of long-term unemployment will alter the U.S. job market for the worse for the foreseeable future.

Bernanke said at a Senate Budget Committee hearing that the natural rate of unemployment -- or the level of unemployment that results when the economy is supporting as many jobs as it can -- has risen from about four percent in the early 2000s to more than five percent because so many Americans have been out of work for so long. In the process, they have lost skills and have become less likely to return to work.

"We are concerned that over the past few years that there has been some modest increase in the sustainable long-run rate of unemployment," Bernanke said. "I hope Congress will consider ways to address that problem."

Though the unemployment rate fell to 8.3 percent in January, many Americans have stopped looking for work and have therefore been pushed out of the workforce, perhaps permanently. The labor force participation rate fell in January to 63.7 percent -- its lowest level since January 1982.

More than 40 percent of those currently unemployed have been without work for more than six months, Bernanke noted. That's roughly double the share during the housing boom of the early and mid-2000s, he said. That adds up to 5.5 million Americans who have been out of work for six months or more, not to mention three to five million more people who have dropped out of the labor force because they have given up looking for work.

Bernanke said that the Fed's Federal Open Market Committee estimates that the natural rate of unemployment is now between 5.2 and 6.0 percent. The actual unemployment rate in 2006 was just 4.6 percent, and in 2000 it was even lower at 4.0 percent, according to the Bureau of Labor Statistics.

The long-term unemployed are in more danger of experiencing years of unemployment because it becomes steadily harder for a job-seeker to find work the longer they're unemployed. Many employers ask for their applicants to be currently employed, a stipulation President Barack Obama is trying to make illegal. Firms also are less prone to hire the long-term unemployed because of the perception that their skills and professional networks deteriorate while they are out of work.

Bernanke has previously warned about the prolonged economic harm of long-term unemployment. In September the Fed chairman called long-term unemployment a "national crisis."

"This has never happened in the post-war period in the United States," Bernanke said in September. "They are losing the skills they had, they are losing their connections, their attachment to the labor force."

Bernanke said on Tuesday that the Federal Reserve can do only so much to bring down unemployment.

"We're only saying that monetary policy really can't do much to bring unemployment in a sustainable way below those levels," Bernanke said of the natural rate.

Bernanke said that in order to bring down the natural rate of unemployment further, the U.S. government needs to focus on projects that provide the country long-run value, especially those focusing on education, worker skills, and research and development.

"We don't want to build useless monuments," Bernanke said.

With many more people no longer considered part of the workforce, Bernanke said that January's 8.3 percent unemployment rate "no doubt understates the weakness of the labor market in a broader sense."

 

Comments

[MrDoughnut]

09:10 AM on 02/27/2012

Love to see the greedy managers in the next draft it's about time.

[MrDoughnut]

08:13 AM on 02/27/2012

Employers that bear false whitness against the unemployed are violating one of the Ten Commandments.

[MrDoughnut]

08:11 AM on 02/27/2012

Letting people starve because of unemployment discrimination is just as evil as Adolf Hitler

[MrDoughnut]

08:05 AM on 02/27/2012

People are going to get even for discrimination an their families are going to boycott businesses that play this awful game.

[Yank in France]

10:53 AM on 02/09/2012

Time to lose a few fans and piss off the ignorant, so here goes, dudes and dudettes!!

Ben Bernanke, probably the most hated man in America is the one man who has steadfastly fought to protect the average American since the outbreak of this terrible crisis!!

Yes, he has fought to keep interest rates low, but the Fed does not have in its power to create demand for credit when the economy is in free fall.

Despite what the radical right would have us believe, central banks must engage in countercyclical interventions during cycle highs or lows. We are in a deep crisis, the worst in 60 years, so the Fed has moved forcefully to move interest rates down.

But what about rightists and Paulist claims that the Fed is printing money? It's not that simple, my friends!! Despite what you've heard, here is the real deal (you can find in any economics textbook): central banks do NOT create money.

This how modern central bank policy works: in times of economic contraction, a central bank increases the money supply by lowering short term interest and, especially, by buying bank bonds; in times of boom, the central bank sells these same bonds in its investment portfolio, thus reducing the amount of money in the marketplace. Other measures (sorry, hardly exhaustive) include changes in banks' required reserve ratios. The ECB, for example, has just cut in half the RR to give banks more leeway to lend money to businesses and individuals.

In normal recessions or booms, these measures are more or less effective, but this crisis is anything but normal. So yes, my rightist friends and Paulists, the Fed's actions, like all actions in this world, will have side effects, but the bottom line is that the Fed's bond purchases, extended to include private sector businesses, have turned a PROFIT for taxpayers in the past two years (about $165 billion).

The truth is that Obama's stimulus policies were too weak, but they were much better than the draconian measures the GOP was proposing. Just look at Greece, the UK, Portugal and Spain if you want to see the result of the austerity measures the GOP and the Paulists are proposing for America!!

So Mr Bernanke, I am sorry that you are underappreciated today, but you will go down in history as one of the great Fed presidents of all time!!

Long live Ben Bernanke!!

[taurus58]

07:09 PM on 02/09/2012

The Federal Reserve System Is A Privately Owned Banking Cartel
The Federal Reserve System Is A Perpetual Debt Machine
The Federal Reserve Has Destroyed More Than 96% Of The Value Of The U.S. Dollar
The Federal Reserve Can Bail Out Whoever It Wants To With No Accountability
http://www.sanders.senate.gov/newsroom/news/?id=9e2a4ea8-6e73-4be2-a753-62060dcbb3c3
The Federal Reserve System Is Dominated By The Big Wall Street Banks

[wirepaladinSF]

09:28 AM on 08/25/2012

The problem for the US economy has been a simple one since the housing bust. This was never the banking crisis everyone thought it was. It was always a household crisis as I described back in 2008. Households are the backbone of this economy and rescuing the banks while forgetting about the households was a colossal error. One which has substantially hurt the US economy. A growing economics literature highlights the importance of household debt balances in influencing the severity of economic slumps, broadly suggesting that the levered nature of household housing assets amplified the effect of pure wealth losses from the crash in housing prices.

[CJ40inWI]

01:30 AM on 02/09/2012

Wow Ben, you just noticed this?

[jinxed]

12:58 AM on 02/09/2012

Is it just me but every time I see Ben Bernanke all I see is a person who really seems to have no concern about the damage that has been done to this nation and its people. He just seems so "bored with it all" and unconcerned. He needs to walk around or drive around some of the streets in any city in the US and observe the devastation he helped orchestrate.

[Tiggy]

12:07 AM on 02/09/2012

uuuhhhmmmm...However did he come to that conclusion? After Brooksley Borne warned of this impending danger in the 90's and was ridiculed? Perhaps after the bail out of Wall Street that failed main street? Every mortgage could have been purchased for less than we have spent padding the financial sector and the economy would have stopped the spiral and trillions of pensions and retirements would not have vanished. Or maybe that was the purpose behind the crash. Let it be known to all that trickle down economics have yet again FAILED! Good riddance to him and Timmy! Though I must confess that someone does a nice job on his manicure.

[CJ40inWI]

01:35 AM on 02/09/2012

Fanned and Faved, especially for mentioning Brooksley Born. She was just run down by Rubin, Greenspan and Summers not to mention the SEC, and Congress and she was right about this disaster.

[Tiggy]

05:57 PM on 02/09/2012

Anderson, though he later apologized and backed her...after the fact. And of course..Geithner was there too, just starting, but in the mix. What I found odd was that Obama appointed Geithner and Summers to clean up the mess though there mindset was well known. Geithner of course was part of the discussions with Paulson in the months leading to the crash. Or perhaps, sad to say, not so odd.

[Kris79]

10:27 PM on 02/08/2012

The thing is, companies are still doing well for the most part. If they can increase their profit with fewer workers, they will. Corporations are not job creators, they are profit generators and they hire the MINIMUM amount of workers that will yield the MAXIMUM profit. And ultimately, stockholders benefit as well and I believe politicians in both main parties are doing well with their stocks obtained from insider trading.

[MrDoughnut]

09:05 AM on 02/27/2012

Corporations aren't job creators you say they would not have existed if it wasn't for the workforce

[ColoradoPete]

09:56 PM on 02/08/2012

........will Congress head his warnings, or will it the obvious warnings fall on deaf ears?? Sadly, I think we know the answer.............

[pgrlights]

09:00 PM on 02/08/2012

Iran has 50% unemployment and maybe very soon in a huge war. This is a typical way the conservatives in any country make use of the extra labor they have.

[MrDoughnut]

09:09 AM on 02/27/2012

If this turns into the next world war remember a draft will take greedy corporate managers this time no more deferments.

[Janzee12000]

08:50 PM on 02/08/2012

This guy is BRILLIANT! He certainly has his finger on the pulse of the economy. Someday, when he decides to put this tremedous responsibility behind him he'll be a shoe-in as weatherman in San Diego...

[ssnt]

10:16 PM on 02/08/2012

I am sitting here literally LMOA. Fanned.

[Si1ver1ock]

06:42 PM on 02/08/2012

If everything is cheaper, why doesn't the cost of medicine and education go down? Why not use some supply side economics here? Increase the number of nurses, doctors and medical techs

[Tiggy]

12:08 AM on 02/09/2012

because the government is involved and businesses see this as more money in the great pool of greed so supply and demand no longer works

[oilfield]

05:10 PM on 02/08/2012

all but one month of 0s presidential career will be under 8% unemployment....if the numbers werent doctored it wouldnt be too many under 10%.....f ai lu re

[AoC]

01:48 PM on 02/09/2012

It takes more than the 3 years he has had in office to correct the previous 8 years of complete and total mismanagement by Bush and crew,
We will be lucky if we get that repaired at all

[oilfield]

12:09 PM on 02/10/2012

it didnt take bush that long after his inherited recession.....the recession of 2001.....and 9/11
0 doesnt inspire confidence.....thats the part of the Keynesian plan that he is missing.

[jo smith456]

04:45 PM on 02/08/2012

prosecute this wall-street-bin-laden!!!!

[Tiggy]

12:09 AM on 02/09/2012

And Timmy too.