Civilian Unemployment Rate

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The following perspective is excerpted from a speech given by Federal Reserve Chairman Ben S. Bernanke to the Greater Omaha Chamber of Commerce in Omaha, Nebraska on February 6, 2007. In it Chairman Bernanke discusses globalization and structural changes in the domestic economy and their impacts on the labor market in the United States:

“…International trade, another aspect of globalization, may also have differential effects on the economic well-being of U.S. workers even as it tends to raise real wages and incomes on average. For example, some empirical research suggests that, in the 1980s and 1990s, increased international trade reduced the profitability and hence the demand for labor in a number of industries that employed relatively more low-skilled workers…. Of course, trade has increased the potential markets for other domestic industries, leading to higher demand and thus higher real wages for workers in those industries. A related development has been the outsourcing abroad of some types of services and production activities. Because labor markets are adaptable, outsourcing abroad does not ultimately affect aggregate employment, but it may affect the distribution of wages, depending on the skill content of the outsourced work. At least until recently, most such activity appears to have involved goods and services that use relatively more low-skilled labor, which (all else being equal) would tend through the workings of supply and demand to slow the growth of wages of domestic low-skilled workers relative to those with greater skills.

“Unfortunately, much of the available empirical research on the influence of trade on earnings inequality dates from the 1980s and 1990s and thus does not address later developments. Whether studies of the more-recent period will reveal effects of trade on the distribution of earnings that differ from those observed earlier is to some degree an open question. Overall, I read the available evidence as favoring the view that the influence of globalization on inequality has been moderate and almost surely less important than the effects of skill-biased technological change.

“Declines in the real value of the minimum wage, brought about by the combination of inflation and the fact that minimum wages are usually set in dollar terms, also affect the labor market. Some research suggests that this factor contributed to the relative decline in the wages of the least-skilled workers during the 1980s. Economists have also pointed out that, although higher minimum wages increase the wages of those who remain employed, they may also lead to reduced employment of low-skilled workers. Thus, the net influence of the minimum wage on earnings and income inequality, as opposed to the inequality of observed hourly wages, is ambiguous…. In any case, the real value of the minimum wage, adjusted to include state minimum wages that are above the federal level, has been fairly flat in recent years, and so has the proportion of the labor force that is unionized. This suggests that these institutional factors have been less important sources of increasing wage inequality recently than they were in the 1970s and 1980s.”

http://www.federalreserve.gov/boarddocs/speeches/2007/20070206/default.htm

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The following perspective is excerpted from a speech given by Federal Reserve Chairman Ben S. Bernanke to Leadership South Carolina in Greenville, South Carolina on August 31, 2006. In it he discusses productivity growth differentials between the U.S. and Europe in the light of distinct labor market cultures:

“…Differences in economic policies and systems likely have accounted for some of the differences in the performance of productivity. One leading explanation for the strong U.S. productivity growth is that labor markets in the United States tend to be more flexible and competitive, market characteristics that have allowed the United States to realize greater economic benefits from new technologies. For example, taking full advantage of new information and communication technologies may require extensive reorganization of work practices, the reassignment and retraining of workers, and ultimately some reallocation of labor among firms and industries. Regulations that raise the costs of hiring and firing workers and that reduce employers’ ability to change work assignments—like those that exist in a number of European countries--may make such changes more difficult to achieve.

“Likewise, in product markets, a high degree of competition and low barriers to the entry of new firms in most industries in the United States provide strong incentives for firms to find ways to cut costs and to improve their products. In some other countries, in contrast, the prominence of government-owned firms with a degree of monopoly power, together with a regulatory environment that protects incumbent firms and makes the entry of new firms difficult, reduces the competitive pressure for innovation and the application of new ideas. For example, some economists have argued that restrictions on land use and on shopping hours in Europe have impeded the development of "big box" retail outlets, reducing competition and denying European firms the economies of scale that have been important for productivity growth in the retail sector in the United States (Gordon, 2004). More generally, recent empirical research has typically found that economies with highly regulated labor and product markets are indeed less able to make productive use of new technologies.”

http://www.federalreserve.gov/boarddocs/speeches/2006/20060831/default.htm

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The following is excerpted from a feature posted on the website of the Federal Reserve Bank of San Francisco. The feature is called “Ask Dr. Econ”. “Dr. Econ” compares the usefulness of the two major employment data sets:

(Q)Why does the Federal Reserve consider nonfarm payroll employment to be an important economic indicator? (June 2004)

(A)The Federal Reserve and others carefully analyze trends in the nonfarm payroll employment series published by the Bureau of Labor Statistics (BLS). Over time, these data have proven to be an important indicator of economic conditions because they move closely in line with the overall economy and are published monthly on a timely basis. In addition, payroll jobs data are published for a large number of industries; this industrial detail helps the Fed to evaluate labor market and business conditions across a wide array of industries. Finally, monthly payroll jobs data by industry also are published on a timely basis for state and metropolitan areas, so economists can evaluate economic conditions for those regions and make comparisons with other geographic areas. The BLS publishes two major monthly employment data series (http://www.bls.gov/news.release/empsit.nr0.htm). Both are released on a very timely basis—about three weeks after the end of the month—making them among the first indicators released for each month.

The /Household Survey/ is generated from a survey of about 60,000 households; these data include farm jobs in their employment totals. The household survey is used to generate unemployment rate figures. The household survey results are published as the civilian employment figures…

The nonfarm payroll job series is revised annually and is smoother over time than the household survey; it also is considered to be the more accurate employment indicator. Most analysts believe that payroll jobs more closely reflects labor market conditions. For example, Federal Reserve Chairman Alan Greenspan observed in testimony before the U.S. House of Representatives on February 11, 2004:

“I wish I could say the household survey were the more accurate. Everything we’ve looked at suggests that it’s the payroll data which are the series which you have to follow.”

http://www.frbsf.org/education/activities/drecon/answerxml.cfm?selectedurl=/2004/0406.html

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The following perspective is excerpted from a speech given by Federal Reserve Governor Mark W. Olson at the Community Development Policy Summit at the Federal Reserve Bank of Cleveland on June 23, 2005. In it he discusses how financial support for small business is crucial for job creation, which in turn benefits the overall economy:

"Federal policy has evolved not only in the area of housing, but also in the area of economic development. I was struck by the remarks of Congresswoman Stephanie Tubbs-Jones at the Small Business Development Conference sponsored by the Federal Reserve Bank of Cleveland in May 2002. She described her mission in Congress as creating jobs. Having worked on Capital Hill for many years, I can tell you that this outlook was not common among elected officials thirty years ago. The understanding that sustainable communities are as dependent on the creation of good jobs as they are on the availability of decent, affordable housing is, I believe, a relatively new construct in our political discourse.

Economic development is now commonly understood to be an essential component of successful community development strategies. As the role of large industrial and manufacturing firms in the overall economy declines, small businesses have become critical to creating jobs and economic growth. In fact, the Small Business Administration reports that small businesses employ half of all private-sector employees and, more importantly, have generated 60 to 80 percent of new jobs annually over the last decade. In Ohio, small business proprietors' income in 2003 increased by just over 10 percent, from $22.3 billion in 2002 to $24.5 billion in 2003. With numbers like these, it is easy to understand how economic development and small business growth also open the doors to the ownership society.

Good jobs with decent wages and benefits provide the basis upon which individuals can begin to save and invest. An essential building block of all economic development is investment, and when private investment does not provide enough capital to stimulate economic growth in a community, public/private partnerships become necessary. Federal policies also help set the stage for lasting economic development by establishing a fair and transparent regulatory system. Federal, state, and local governments promote economic development by providing access to capital and offering various financing options for new and emerging businesses. In addition, financial institutions and community-based organizations provide capital to firms that qualify for their programs."

http://www.federalreserve.gov/boarddocs/speeches/2005/20050623/default.htm

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The following is excerpted from a speech given by Federal Reserve Governor Ben S. Bernanke at the Annual Washington Policy Conference of the National Association of Business Economists in Washington, DC on March 25, 2003. In it he discusses the interplay between the unemployment rate and inflation:

"The maintenance of price stability--and equally important, the development by the central bank of a strong reputation for and commitment to it--also serves to anchor the private sector's expectations of future inflation. Well-anchored inflation expectations (by which I mean that the public continues to expect low and stable inflation even if actual inflation temporarily deviates from its expected level) not only make price stability much easier to achieve in the long term but also increase the central bank's ability to stabilize output and employment in the short run. Short-run stabilization of output and employment is more effective when inflation expectations are well anchored because the central bank need not worry that, for example, a policy easing will lead counterproductively to rising inflation and inflation expectations rather than to stronger real activity."

http://www.federalreserve.gov/boarddocs/speeches/2003/20030325/default.htm

 

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