Jeff Kearns, Caroline Salas Gage and Aki Ito:
Hysteresis Undermining Labor Pattern Becomes Bernanke Fed Focus: After looking for work since May 2009, Raquel Barron, 40, hears the same thing when she interviews: We don’t want to hire someone who’s been jobless for so long. “They still put me at the bottom of the list when I tell them I’ve been unemployed for three years,” said Barron, who moved into her parents’ home in El Sobrante, California, after losing her administrative job at a construction company. “Every single day, I go on Craigslist to look at their listings. But I feel like my chances are only getting worse.”...
Federal Reserve Chairman Ben S. Bernanke agrees. If the labor market heals too slowly, the 5.1 million Americans out of work for at least six months may face declining odds of ever finding a job -- leading to permanently higher unemployment, a phenomenon known as hysteresis. Bernanke says while this hasn’t happened yet -- as weak growth is mainly responsible for the “elevated” jobless rate -- the risk that it could bolsters his case to keep record monetary stimulus in place....
Vice Chairman Janet Yellen said April 11 that continued monetary accommodation is warranted because of the risk that high unemployment may cause “more persistent structural problems” if temporary joblessness becomes more permanent. While she, like Bernanke, doesn’t see any “substantial” evidence of hysteresis yet, it might occur if the labor market doesn’t heal fast enough, she said in New York...
The curious thing is that potential-GDP and NAIRU estimates from not just private-sector forecasters and the CBO but from the Federal Reserve itself suggest that hysteresis has started--only started, but definitely started--to bite already.
Why don't Bernanke and Yellen see the evidence that it is starting to chomp down right now that I do? And why don't they see that the fact that hysteresis is starting to chomp down makes it much more urgent to boost aggregate demand now before even more of our cyclical unemployment turns into structural unemployment?
