Is the Fed’s Anti-Worker Bias Starting to Crack?
(Bloomberg Opinion) -- In his testimony before the Senate Tuesday, Federal Reserve Chairman Jerome Powell was peppered with questions about how to get more Americans working. It’s a valid concern — particularly for the Fed, which bears more responsibility for low labor force participation than it cares to admit.
First, a little background on what the statistic means. If you currently have a job, the government counts you as employed. If you don’t have job but have looked for one in the past four weeks, then it counts you as unemployed. And if you don’t have job and haven’t looked for one in the past four weeks, then the government says that you are out of the labor force. The labor force participation rate is the percentage of Americans who either have a job or have looked for one in the last four weeks.
Currently, that rate stands at 63 percent — and it has been in decline. Part of the reason is that America is getting older. But that doesn’t explain it completely. Even considering only Americans aged 25 to 54, the prime working years, the labor force participation rate is still lower than it was 20 years ago.
Economists have many theories as to why, from the status of the dollar as international reserve currency (which reduced demand for U.S. goods and, in turn, for U.S. workers) to increased trade with China (which reduced jobs in manufacturing). They’re not wrong. It’s also true, however, that the Fed’s economic policy has been biased against workers for nearly two decades.
This bias has created an environment where employers almost always have more applicants than available openings. Over time, this has caused employers to become spoiled about who they would hire. It has also led them to reduce their investment in training new workers, who were often expected to pay for their own training. This has had corrosive effects on the overall labor market. While some workers have undergone retraining, sometimes more than once, others have given up.
This phenomenon has affected rural America more deeply than urban America. Again, there are multiple theories as to why. The most obvious answer is that the limited number of employers in rural areas, and the limited types of jobs available, puts prospective employees at a disadvantage. Once they realize they cannot compete with better-trained or -skilled workers, they drop out of the labor force. Urban areas, by contrast, are more dynamic, with more diverse kinds of work — and a wider range of employers, including newer businesses that may be more willing to take a chance on a less experienced employee.
Only now is this anti-worker bias beginning to shift. In recent months there have been more job openings than people looking for jobs. The result has been nothing short of miraculous. Employers have increasingly been willing to hire workers who are ex-felons or have disabilities that require accommodations.
And most crucially, firms have begun to invest in worker training again. This is vital because training provides the technical skills that are needed to increase productivity. When those skills are obtained on the job, the worker is guaranteed to learn techniques and knowledge that will be of practical use.
A strong job market can provide training better and faster than any number of well-meaning but slow-moving changes in public policy. As hard as community colleges might try, for example, there will always be a gap between what they teach and what students (and their prospective employers) need.
And this is where the Fed comes in: To continue this progress, the central bank has to show more concern for workers and less about inflation — the opposite of what it has done for almost two decades. It has to be willing to let inflation rise a bit higher, and stay there for a bit longer, than its economists might prefer.
The reward, however, will be the continued integration of millions of Americans into a productive labor force — and the steady addition of professional skills and personal empowerment that comes with a well-paying job.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Karl W. Smith is a former assistant professor of economics at the University of North Carolina's school of government and founder of the blog Modeled Behavior.
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