(Reuters) - The U.S. labor market may have more slack than the rapid decline in the unemployment rate suggests, according to a study published Friday by the Federal Reserve Bank of Chicago, pointing to the need for continued easy-money policies.
The U.S. jobless rate registered 5.8 percent in November, down from 7 percent a year earlier.
That decline is in part driven by people dropping out of the workforce because of a dearth of available jobs for those without a college degree, Chicago Fed’s chief of research Dan Sullivan and three of his colleagues wrote in the regional Fed bank’s latest Economic Perspectives.
If that’s so, they suggested, at least some of those workforce dropouts could return to the labor market as growth picks up, making it easier for employers to fill jobs.
“The existence of such extra slack might imply that it would be appropriate for monetary policy to remain highly accommodative for longer than would otherwise be the case,” Sullivan, Daniel Aaronson, Luojia Hu and Arian Seifoddini wrote.
The debate over the driving force behind the recent sharp drop in U.S. labor market participation, to 62.7 percent in November from 66 percent in 2007, is central to Federal Reserve policymaking. Most economists, including the study’s authors, agree that much of the decline is due to the aging population, and reflects a long-term trend.
But Sullivan and his colleagues say only about half of the decline over the last five years is from changing demographics, a smaller portion than many economists believe.
Sullivan’s boss, Chicago Fed President Charles Evans, is one of the Fed’s most vocal proponents of continued easy monetary policy, in part because he sees more labor market slack in the economy than many of his colleagues.
Evans will vote on Fed policy next year.
Reporting by Ann Saphir; Editing by James Dalgleish