Unemployment rate high according to Fed Chair

Before you get too excited by reports that the January unemployment rate inched down to 6.6 percent, remember, the unemployment rate is not always the best measure of the job market. What we now know is that many Americans have simply dropped out of the workforce and are no longer actively looking for employment.

In fact, according to a new report by CNN, there are an estimated 91 million adult Americans who do not work. This number is 37% of the population, and the highest level on record since 1978. Remember, however, this number can also be a bit deceiving because it also includes stay at home moms, adults enrolled in college and some retirees.

Federal Reserve Chairman believes too many workers are unemployed

 

But before you think it’s just a few naysayers who are complaining about the unemployment rate, consider, the new Federal Reserve Chairman, Janet Yellen, agrees. Yellen, who was sworn in last week, pointed out that she has continuing concerns about long-term employment, despite what she considers gains since the Great Recession.

“The recovery in the labor market is far from complete,” she said. Yellen is concerned about what has been termed underemployment, which includes workers who are part-time who want to work more hours and those who have been unemployed for more than six months.

How large is the problem? According to a new report released in January, there are an estimated 3.6 million workers who have been unemployed for more than 6 months. Unfortunately, the longer a worker is unemployed, the more difficult it becomes to re-enter the workforce.

The underemployed has also grown, with an estimated 7 million Americans working fewer than 35 hours a week. According to the CNN report, underemployment occurs for a variety of reasons including “slack work, unfavorable business conditions or an inability to find a full-time job.”

What is the Federal Reserve doing about unemployment?

 

The Federal Reserve has discussed easing their program of buying billions of bonds each month, but they have suggested that the tapering program was contingent on the improvement of the U.S. economy. With the remarks by Yellen, it’s clear she will follow in Bernanke’s footsteps and continue with the program.

What does the Federal Reserve hope to gain? Although many economists have argued the Federal Reserve’s program of quantitative easing will eventually devastate the economy, the Fed believes “that by stimulating more borrowing and spending, lower interest rates can jumpstart the economy.”

The Federal Reserve has lowered their purchases of bonds from $85 billion in bonds per month since September 2012, to $75 billion in January. They will continue to taper to $65 billion in February.

As mentioned above, the Federal Reserve was hoping the unemployment rate would continue to fall, believing the lower employment rate is an indication that more Americans have successfully entered the labor force. But as we know, much of the decline in the unemployment rate over the last three years has come from Americans leaving the labor force entirely, and this is not good for the economy.

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Beth

Beth L. is a content writer for Better Bankruptcy. Good content and information is one of many methods we utilize to bring you the answers you need.