Federal Reserve chairman Ben Bernanke has warned that the recovery in the job market remained fragile – but said he believed cyclical, not structural, problems were to blame.
The US economy has added an average 245,000 jobs over the past three months, and the number of people applying for initial unemployment benefits slipped to a four-year low last week.
The recovery has been seen as a major boost to president Barack Obama’s re-election campaign. But Bernanke warned there may be trouble ahead.
“We have seen some positive signs on the jobs front recently, including a pick-up in monthly payroll gains and a notable decline in the unemployment rate. That is good news. At the same time, some key questions are unresolved,” Bernanke said in a speech to the National Association for Business Economics on Monday.
He said the recent positive jobs numbers seemed “somewhat out of sync” with the overall pace of economic expansion, and that a close look revealed some worrying trends.
The number of people working and total hours worked are still significantly below pre-crisis peaks, said Bernanke. He said he was particularly concerned by the large number of people who have been unemployed for more than six months.
“Notwithstanding these welcome recent signs, the job market remains quite weak relative to historical norms,” he said. “After nearly two years of job gains, private payroll employment remains more than 5 million jobs below its previous peak.”
The share of people unemployed for more than six months has been higher than 40% since December 2009, he said. “By way of comparison, the share of unemployment that was long term in nature never exceeded 25% or so in the severe 1981-82 recession,” said Bernanke.
Even though the unemployment rate has been falling, it was still roughly 3% above its average over the 20 years preceding the recession, he said. “Moreover, a significant portion of the improvement in the labor market has reflected a decline in lay-offs rather than an increase in hiring,” said Bernanke.
The Fed chairman said he believed in part that the recent bounce back in the jobs market may have been the “flip side of the fear-driven lay-offs that occurred during the worst part of the recession.”
Worried employers sacked too many workers going into the recession and have now started hiring back employees to cope with demand, Bernanke said.
But he said he was not convinced that the high rates of unemployment were caused by structural factors, including the shift of jobs from people to technology and US skill shortages.
While structural changes are important in the long-term, Bernanke said he believs they have played only a “modest” part in the recent increase in long-term unemployment.
If he is wrong, said Bernanke “it will become even more important to take the steps needed to ensure that workers are able to obtain the skills needed to meet the demands of our rapidly changing economy.”
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