During the December 2008 Meeting of the Federal Open Market Committee, Alternate member Janet Yellen (now Federal Reserve Board of Governors Chair) expressed concerns about rising labor force participation. Her fears of a RISING labor force participation rate may have contributed to the massive Fed intervention in to the financial system in order to manipulate interest rates and distort markets.
YELLEN: Turning just very briefly to the labor market, the Beveridge curve chart that Stephanie presented during her briefing suggests that we have seen an unusually large increase in the unemployment rate recently in comparison with the decline in job openings, at least in the JOLTS data. I think one interpretation might be that the unemployment rate has risen in part because we have had an unusual rise in labor force participation during this recession.
Labor force participation has been higher than would be expected, particularly for three demographic groups: young adults, married women, and older workers nearing retirement. Analysis by my staff estimates that this rise in participation could reflect behavioral responses to unusual credit constraints and wealth declines.
Specifically, young adults aged 20 to 24 years appear to be entering the labor force in unusual numbers, and that might reflect diminished access to student loans.
Similarly, more married women are entering the labor force, and that’s a possible reflection of diminished access to home equity and credit card loans.
Finally, an unusually large number of older workers are in the labor market, and that may reflect the negative wealth shock associated with the collapse of housing values and the plummeting stock market.
All in all, I expect the anomalous increase in labor force participation to put continued upward pressure on the unemployment rate.
Here is a chart of labor force participation as of December 15, 2008.
Here is the chart of labor force participation AFTER Yellen’s concerns over a rising labor force participation rate. The purple line is the Fed’s balance sheet.
Well, if Yellen’s intention was to lower labor force participation, she succeeded beyond her wildest expectations. But was a decline in real median household income (green line) part of her model? Here is a closer look since January 2008.
Or crashing M1 Money Multiplier or M2 Money Velocity? I changed the Fed’s Balance Sheet to a purple line for the following charts.
Or crashing mortgage purchase applications.
But at least the US equities (blue dashed line) have benefited from the massive Fed intervention to depress labor force participation.
And the Elliott Wave for the S&P 500 index is tracking the Fed’s Balance Sheet nicely!
Great. The middle class got walloped (declining labor force participation and real median household income) while stock market investors got a pat on the back. Also, we got a M1 money multiplier below 1 and dying M2 money velocity in the bargain.
Like the Star Trek episode “All Our Yesterdays,” a view back in time is very telling about Yellen’s ideas of “helping” the middle class.