Structural Labor Market Issues Being Addressed

In the continued effort by the Federal Reserve to increase transparency into its thinking, new Fed Chair Janet Yellen has provided investors her “employment dashboard,” which is the nine labor market indicators she watches to judge the amount of slack in the labor market.  When analyzing these nine measures, it becomes clear that the laggards, labor force participation rate and long-term unemployed as a percent of total unemployed, are likely due to structural reasons.  Structural unemployment is typically caused by a mismatch between worker skills and job openings.  The Fed has said many times, and we agree, that these structural issues need to be addressed by fiscal policies.  It is no surprise then, that President Obama is proposing a $600 million package to increase federal  job training investments.  While these types of federal programs have proven to be somewhat inefficient in the past,  the President’s proposal is certainly a step in the right direction in solving the structural unemployment issue.  Should things improve on this front, yet another indicator on Yellen’s dashboard will be heading in the right direction, which would likely mean tighter monetary policy is around the corner.