Ben Bernanke:
Recent Developments in the Labor Market: Another logical possibility is that the decline in the unemployment rate could be overstating the improvement in the job market. For example, potential workers could be giving up on looking for work to an unusual extent. Because a person has to be either working or looking for work to be counted as part of the labor force, an increase in the number of people too discouraged to continue their search for work would reduce the unemployment rate, all else being equal--but not for a positive reason. A story centered on potential workers dropping out of the labor force might seem in line with the low level of the labor force participation rate. But other data cast doubt on that idea. For example, a broad measure of labor underutilization that includes people only marginally attached to the labor force has declined about in line with the unemployment rate since late 2010. On balance, an assessment of a broad range of indicators suggests that a substantial portion of the decline in the unemployment rate does reflect genuine improvement in labor market conditions…
To claim that reductions in the unemployment rate that come about through reductions in labor-force participation with no change in the employment-to-population ratio are "substantially" a "genuine improvement" like reductions in the unemployment rate that come about through increases in the employment-to-population ratio accompanied by increases in labor-force participation…
To transform cyclical into structural unemployment is not a victory for policy.
