MNI INTERVIEW: Fed Economist: Low Unemployment Rate Structural

By Jean Yung

     WASHINGTON (MNI) - The fall in U.S. joblessness since the financial crisis

is due to demographic and other structural factors rather than to booming demand

for workers, meaning that the labor market is no more overheated than in

previous business cycle peaks, Federal Reserve Bank of San Francisco economist

Marianna Kudlyak told MNI.

     New research by Kudlyak and Richmond Fed economist Andreas Hornstein shows

that a low "entry rate" into unemployment, rather than an unusually high

job-finding rate, accounts for the entire decline of unemployment to 3.5% over

the past decade. In other words, working Americans are staying in their jobs

longer, and those who are not working or looking for a job are also staying that

way.

     "The labor market is tight. There's no question about that. What we're

saying is it's not unusually tight as compared to previous business cycle

peaks," Kudlyak said in an interview.

     Kudlyak and Hornstein broke the unemployment rate into trend and cyclical

components, finding the former to be 4.5% in 2019, down from 5.7% in 2007 and

5.1% in 2000. In all three cases the actual jobless rate is below its trend

rate, but comparing the difference finds "the magnitude of the gap (in 2019) is

comparable to that of the past two labor market peaks," Kudlyak said.

     That conclusion is in line with Fed Chair Jay Powell's position that the

labor market is not overheating or stoking inflationary pressure and is only now

starting to benefit workers on the margins.

     --BOTTOMED OUT?

     More mature workers tend to leave jobs less frequently, and that has been a

growing influence on the labor market as the U.S. working population ages,

Kudlyak said.

     Other theories for why workers are staying put include better job-matching

between workers and firms due to technological advances and an increase in labor

force attachment of female workers.

     The supply of additional workers from the shadow labor market may also be

tapped out, Kudlyak said, citing population aging, disability and the opioid

crisis. Other economists have differed on this point, arguing that the rising

labor force participation rate has shown disabled workers in particular have

been returning to work since the crisis.

     As to whether these structural trends have more room to run, Kudlyak was

uncertain. "We cannot tell if the unemployment rate has bottomed out yet."

--MNI Washington Bureau; +1 202-371-2121; email: jean.yung@marketnews.com

[TOPICS: MMUFE$,M$U$$$,MT$$$$,MX$$$$]