Tags: Fed | unemployment | jobs | work force

Chicago Fed: Fewer Jobs than Believed Needed to Lower Unemployment

By    |   Thursday, 13 June 2013 08:30 AM

We don't need as many new jobs to lower the unemployment rate as we did previously, say researchers at the Chicago Federal Reserve.

We only need about 80,000 new jobs a month to decrease unemployment, write Daniel Aaronson, vice president and director of microeconomic research, and Scott Brave, senior business economist.

Conventional wisdom holds that 100,000 to 150,000 jobs a month are need to lower the unemployment rate. Back in the 1980s and 1990s, 150,000 to 200,000 new jobs were required to push down unemployment.

Editor's Note:
See the Disturbing Charts: 50% Unemployment, 90% Stock Market Crash, 100% Inflation

What's more, the economy will need even fewer new jobs to lower unemployment in the future — only about 35,000 a month from 2015 through the rest of the decade, they say.

The economists point to changing labor force demographics and slower population growth as the reasons for the fewer jobs needed.

Labor participation — the percentage of adults working or seeking work — has been falling and will continue dropping by about 0.3 percentage point a year through at least 2020, as baby boomers age and leave the work force, they assert in their paper.

In addition, population growth will slow substantially so fewer new workers will be entering the labor force. "The Census Bureau projects a significant slowdown in population growth from the 1.00 percent to 1.25 percent rate that prevailed for the two decades prior to the most recent recession," they note.

Their numbers would have huge implications if accepted by the Fed. How quickly the unemployment rate falls could influence when and how quickly the Fed winds down its quantitative easing program, which is pushing down long-term interest rates. It could also play a role in when the Fed plans to begin raising the Fed funds target rate. It has said will keep that rate near zero until unemployment, now at 7.6 percent, falls to 6.5 percent.

Goldman Sachs Senior Economist Jan Hatzius disagrees with their findings, saying the assumptions the Fed economists use for predicting a declining work force could be wrong, CNBC reports.

"This is not a technical detail," Hatzius say in a note, according to CNBC. "If the actual participation rate is currently below trend but is likely to converge to trend over time, the pace of job growth will need to be materially above 80,000 per month to keep the unemployment rate stable, at least over the next few years."

The number of new jobs needed to decrease unemployment is "significantly higher" than their 80,000-a-month figure, he adds.

Editor's Note: See the Disturbing Charts: 50% Unemployment, 90% Stock Market Crash, 100% Inflation

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We don't need as many new jobs to lower the unemployment rate as we did previously, say researchers at the Chicago Federal Reserve.
Fed,unemployment,jobs,work force
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2013-30-13
Thursday, 13 June 2013 08:30 AM
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