Federal Reserve Chair Janet Yellen has a stubborn warning light blinking on her labor market dashboard: A group of Americans larger than Washington state’s population can find only part-time work.
As Yellen heads to this week’s Fed symposium in Jackson Hole, Wyoming, where the focus will be on the labor market, those 7.5 million part-time workers who want full-time jobs are inflating the broad measure of underemployment she watches to gauge job market health. Involuntary part-time workers have gained by 325,000 from February’s five-year low.
With employment and inflation nearing Fed goals, Yellen has consistently cautioned some labor market measures still show enough slack to warrant keeping interest rates low. In the shadow of the Teton Range of the Rocky Mountains, she’ll have a chance to highlight soft spots such as the crowded pool of part- timers as investors try to decipher the timing of the Fed’s first rate increase-rate increase since 2006.
“We still have quite a long ways to go,” said Aneta Markowska, chief U.S. economist at Societe Generale SA in New York. In the discussion of monetary policy, “I’d be surprised if the message is anything other than dovish.”
Yellen, 68, is delivering a speech titled “Labor Markets” at the Jackson Hole symposium Aug. 22 at 10 a.m. New York time. The three-day meeting of central bankers and economists begins Aug. 21 with a topic of “Re-evaluating Labor Market Dynamics.”
Policy Shifts
Some previous conferences there have foreshadowed some of the Fed’s biggest policy shifts since the financial crisis. In 2010 and 2012, then-Chairman Ben S. Bernanke signaled new bond buying that has pumped up the Fed’s balance sheet to a record $4.43 trillion.
Heading into this year’s Jackson Hole assembly, the labor market is giving off mixed signals even as unemployment falls. About 28 percent of all part-time workers in July reported that slack business conditions or a dearth of full-time jobs kept them from finding full-time work. That’s up from a 19 percent share at the start of the downturn.
The high share of workers who are part time for economic reasons is one reason that the Labor Department’s broadest measure of unemployment remains far above its 8.8 percent pre-recession level. U6 unemployment, which includes involuntarily part time and discouraged job seekers in addition to the jobless, is 12.2 percent, or almost double the 6.2 percent level of the main unemployment rate. Both increased by 0.1 percentage point in July from five-year lows in June.
Recession Fallout
About 4.62 million Americans worked part time for economic reasons in December 2007, the start of the 18-month recession. The level peaked at a record 9.22 million in March 2010, five months after unemployment reached a 26-year high of 10 percent.
“There are jobs, but they’re not necessarily the best paid, and they are often quite precarious,” said Thomas Costerg, an economist at Standard Chartered Plc in New York. “It says something about the labor market, that we’re not back to normalcy. There’s ongoing progress, but we’d like to see part-time work going down more quickly to show that the labor market is really back on track.”
Younger workers are most often stuck in part-time jobs: 20 to 24 year olds are more than twice as likely as the average worker to be employed part time for economic reasons, according to Labor Department data compiled by Bloomberg.
40-Hour Week
The Labor Department defines a part-time work week as fewer than 35 hours. It defines involuntary part-timers as those who want full-time jobs but are working less than that for an economic reason, such as their hours were cut back or they can’t find full-time employment. Non-economic reasons include family or personal obligations such as child care, medical limitations, school, or a limit on retirement earnings.
At her first press conference in March, Yellen detailed her dashboard of labor market indicators, including layoffs, job openings, payroll growth, unemployment, underemployment, hires, quits, long-term unemployment and labor force participation.
In her first policy speech after becoming chair in February, Yellen traveled to Chicago and cited individual workers, including one who lost two jobs, endured homelessness, and served food samples part time at a grocery store.
Many Americans “lost a full-time job in the recession and seem stuck working part time,” Yellen said March 31. “The unemployment rate is down, but not included in that rate are more than 7 million people who are working part time but want a full-time job. As a share of the workforce, that number is very high historically.”
Underused Capacity
The Federal Open Market Committee in its July 30 policy statement added new language emphasizing weakness beyond the main unemployment rate, saying “a range of labor market indicators suggests that there remains significant underutilization of labor resources.”
Even with employment rebounding, Yellen has cautioned it still may be too soon to start withdrawing accommodation. She testified to lawmakers July 15 the recovery is incomplete and she sees “significant slack” in labor markets, and said the unemployed and their families endure “psychological trauma.”
Policy makers are monitoring “not just the unemployment rate but a broad range of indicators including involuntarily part-time employment,” the Fed chief said.
Yellen said the central bank has no “mechanical answer” for when to raise rates, and that before doing so policy makers must be certain the economy is on solid footing. She said while her overall view is positive there are still “mixed signals” in the data, and “we have in the past seen sort of false dawns.”
Rate Liftoff
Most Fed officials forecast they will need to raise the benchmark rate sometime next year after holding it near zero since December 2008. The median estimate of policy makers released after their June meeting shows they project a rise to 1.13 percent at the end of 2015 and 2.5 percent a year later.
Rates will rise next year in the third quarter, according to the average of economist estimates in a Bloomberg survey. Fed funds futures show investors expect the first increase in borrowing costs will come in October 2015.
Elevated involuntary part-time levels and falling labor participation are “troubling employment phenomena” that reduce confidence in using the unemployment rate as an indicator, according to Atlanta Fed President Dennis Lockhart, who votes on policy next year. He said there is still not enough evidence the Fed is close to full employment even after “healthy” job gains, citing elevated numbers of part-time workers.
“That measure of labor utilization has been stubborn when compared to the decline of headline unemployment,” Lockhart said. People working part time for economic reasons “has been declining over the year, but over the last few months, it has toggled back and forth.”
Masking Weakness
Minneapolis Fed President Narayana Kocherlakota, who votes this year, cautioned in an Aug. 15 speech that the “progress in the decline of the unemployment rate masks continued weakness in labor markets.” He said the historically high share of part- time workers is “especially significant” and indicates “remaining some way from” full employment.
For Yellen, the problem takes a human dimension in people like David Beck, who has been looking for full-time work since he lost his job as a buyer at retailer Stage Stores in May 2013. The 61-year-old found temporary employment with a catalog company in May, consulting on retail apparel about 20 hours a week.
“I need to work full time and get a decent salary,” said Beck, who lives with his wife in Springfield, Illinois, and applies to 12 to 15 jobs per week. “It’s still tough.”