Remarks by Fed Vice Chairman Stanley Fischer: The Behavior of Employment Has Been Remarkably Resilient

Vice Chairman Stanley Fischer

Employment, Hours, and Earnings from the Current Employment Statistics survey (National); US Bureau of Labor Statistics*; Data extracted on: August 22, 2016

At the Program on the World Economy

Sponsored by The Aspen Institute, Aspen, Colorado

August 21, 2016

Remarks on the US Economy

So we are close to our targets. Not only that, the behavior of employment has been remarkably resilient. During the past two years we have been concerned at various stages by the possible negative effects on the US economy of the Greek debt crisis, by the 20 percent appreciation of the trade-weighted dollar, by the Chinese growth slowdown and accompanying exchange rate uncertainties, by the financial market turbulence during the first six weeks of this year, by the dismaying pothole in job growth this May, and by Brexit — among other shocks. Yet, even amid these shocks, the labor market continued to improve: Employment has continued to increase, and the unemployment rate is currently close to most estimates of the natural rate.

During that period, the decline in the price of oil changed from being regarded as a simple reduction in the cost of living of almost all households — and thus an unmitigated blessing — to also being a source of concern, as it was understood that the decline in investment in the production and installation of drilling equipment mitigated the blessing, as did the decline in US oil production.

And there have been other issues of concern to those particularly interested in monetary and macroeconomic policy, though probably of less explicit concern to the public: The decline in estimates of r* — the neutral interest rate that neither boosts nor slows the economy — which is related to the fear that we are facing a prolonged period of secular stagnation; the associated concerns that (a) the short-term interest rate will be constrained by its effective lower bound a greater percentage of time in the future than in the past, and (b) that the US economy could find itself having to contend at some point with negative interest rates — something that the Fed has no plans to introduce; the fear that very low interest rates present a threat to financial stability; and concerns that low rates of real wage growth are increasing inequality in the distribution of income.

Primarily, I believe it is a remarkable, and perhaps underappreciated, achievement that the economy has returned to near-full employment in a relatively short time after the Great Recession, given the historical experience following a financial crisis. To be sure, it was a slow and difficult time for many, in part because growth in real gross domestic product (GDP) has been slow by historical standards. As can be seen in table 1, part of the slower output growth was due to smaller increases in aggregate hours worked, primarily reflecting demographic factors such as the aging of the baby-boom generation. But, as shown in table 2, there was also a major decline in the rate of productivity growth — to which I will return shortly.

*July jobless rates up in 7 states, down in 3; payroll jobs up in 15 states, down in 1