What does labor market slack look like?

In her remarks at the Economic Club of New York Wednesday, Janet Yellen focused on the things that the FED would be watching closely going forward.  The chairwoman made it clear she was more concerned with continued low prices then with inflation exceeding the 2% target set by the central bank. However, the FED’s primary focus remains on the labor market.  Fixing this market might take more then just monetary policy.

The Labor market has been characterized as having significant “slack” in it.  This term accurately describes the ability for businesses to add jobs with out having pulling up wages.  An increase in wages could cause inflation, so the FED is closely watching the labor market for signs of tightening.

What makes up this “slack”?  The Federal Reserve Bank of Atlanta publishes what is known as the Labor Market Spider Chart.  The chart provides a comparison of many labor market metrics at various times in one chart.  An image is shown below, but the link is interactive, so I encourage you to check it out.

Levels-Spider-Chart-from-the-Atlanta-Federal-Reserve-961x1024

This chart has a lot of information in it.  Most notably that there are a large amount of people working temporarily and part-time then would be in a healthy labor market.  There is also a dramatic decrease in marginally attached workers, are the discouraged workers who have worked or looked for work in the past year.  Given the other factors in this chart, some of this decrease may be due to workers giving up entirely and dropping out of the labor force, as opposed to actual hires, which are slightly worse then in 2012.

Janet Yellen would also mention that she believes that the economy can reach healthy levels in the employment market by 2016.  If the spider chart can be used to visualize labor market slack, then it can show tightening as well.  The Other parts of the circle need to shift out to their pre-recession levels as well.

There is a slight symmetry to the above graphs.  Hires on the right have to have some effect on job finding rate on the left.  Similarly with job openings and job availability.  Whether the FED alone can institute the policies needed to bring about the needed changes is unclear.  There is a lot of work to do.  The president of the Minneapolis Federal reserve bank, Narayana Kocherlakota has suggested certain fiscal polices that models suggest could result in the needed growth.  However, even if these policies where implemented, 2016 may be a very ambitious goal.

 

9 thoughts on “What does labor market slack look like?

  1. lippmanb

    Great post! I have blogged about how the unemployment rate has been dropping, but it is important to know that this is partially caused by more and more people dropping out of the labor force. I hope the 2016 prediction is true.

  2. gaochen

    Very interesting post! The spider chart is an very explicit way to show the problems of the labor market. As you mentioned there are many problem in recent labor market. It would interesting to use spider chart to analyze the labor market in 2016.

  3. cjamesj

    Hopefully the 2016 predication does come true, however it is important the Fed doesn’t lose site of those dropping out of the labor force and claiming a false win.

  4. alexfigu@umich.edu'alexfigu

    The unemployment has been very interesting over the past year. It is nice to see that Yellen is acknowledging that the labor market isn’t as strong as others have said. Seems as if we have really neglected the bigger factor of people moving out of the job market.

  5. haozhao

    This “Spider Chart” is great! The unemployment rate doesn’t mean anything nowadays, we need more comprehensive indexed to show the healthiness in labor market.

  6. mdbold

    That chart is very useful. It is sometimes hard to determine what is meant by “slack.”

  7. xcharles

    Very interesting post. I wasn’t aware of how drastic the situation was of people working in temporary and part-time. Also, this chart makes it easier to visualize how the 6.7% unemployment rate is composed. Many times, it is hard to describe the unemployment rate to other people after many more people have completely dropped out of the work force.

  8. fanglue

    The spider chart is so impressive! If 2016 prediction is true, then the class of 2016 would be the most lucky kids.

  9. umbrown@umich.edu'umbrown

    Great Post, I like that interactive chart a lot. It is interesting how perfect the pre-recession circles were compared with how distorted they are today.

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