Secret job-market slack complicates rate decision

Federal Reserve policymakers are missing a key element as they assess the health of the labor market: data that includes whether those who are employed are overqualified for their job or would like to work more hours.
As a result, the “significant underutilization of labor resources” that Fed officials highlighted last month as they renewed a pledge to keep interest rates low for a “considerable period” is probably even more severe than currently estimated. And the information gap means policymakers may have more difficulty gauging the right moment to raise rates off zero.
“We have more slack than the official statistics suggest,” said Michelle Meyer, a senior U.S. economist at Bank of America Corp. in New York. “Because it’s difficult to measure underutilization, there’s still a lot of uncertainty as to how much slack remains, which means there’s uncertainty as to the appropriate stance of monetary policy.”
The Labor Department can put its finger on how many people are working part time because full-time jobs aren’t available, or how many are so discouraged that they’re not even looking for employment. Other forms of underemployment – for example the graduate with an English degree who’s working as a barista – are harder to pinpoint though just as important in trying to measure whether the labor market has improved.
The data shortfall sparked a discussion at a Peterson Institute for International Economics conference last month in Washington. Erica Groshen, commissioner of the Bureau of Labor Statistics, asked what additional data would be needed to help quantify labor-market slack.
Betsey Stevenson, a member of President Barack Obama’s Council of Economic Advisers, pointed out that while it was possible with current data to determine whether people working less than 35 hours a week are underutilized, those putting in a longer workweek fall off the radar. The BLS considers anyone working at least 35 hours a week to be full time. The Census Bureau, which surveys households to get the information needed for the Labor Department to crunch the monthly jobs data, doesn’t ask full-timers whether they’d prefer a different job or additional hours.
“If you’re a college graduate working at Starbucks and you work 32 hours, we know you’re in the wrong job,” Stevenson said at the conference. “If you work 35 hours, we don’t know.”
Private surveys have attempted to fill in the gaps. Some 46 percent of workers who graduated from college in 2012 or 2013 said that they were in a job that did not require their degree, according to a study released in May by Accenture Plc. That’s a 5 percentage point increase from last year, the New York-based management-consulting company’s report showed.
Meanwhile, a report earlier this year from the Federal Reserve Bank of New York found that 44 percent of working recent grads were underemployed in 2012, defined as holding a job that doesn’t usually require a bachelor’s degree at all. That was up from 34 percent in 2001 and approaching levels last seen during the 1990-91 recession, when concern about underemployment heightened, the central bank said.
Mario Mendoza said he works as many as 70 hours a week driving a taxicab in Miami. The 34-year-old has a bachelor’s degree in sociology and anthropology and a master’s in global sociocultural studies from Florida International University. He said finding an entry-level job where he could do social or market research would put his driving days behind him.
“If you spend so many years in school preparing yourself and studying, you want to use those skills to work, not to do something like be a waiter or drive a cab or work at Starbucks,” he said. •

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