WASHINGTON – Federal Reserve Chairman Ben Bernanke on Friday gave an endorsement to one side in a debate among economists about why the unemployment rate is so high.
Bernanke agreed with those who see the problem being more tied to a weak economy, and less so to workers lacking the necessary skills for jobs that are available. That assessment is a big reason why the Fed is widely expected to take more steps soon to stimulate economic growth.
The "bulk of the increase in unemployment is attributable to the sharp contraction in economy activity ... rather than to structural factors," Bernanke said during a speech in Boston on Friday.
It's an important debate because its implications affect most Americans.
The Federal Reserve can take action to boost a weak economy and bring down unemployment. But if the problems are more associated with mismatched skills, or other so-called "structural reasons", then there's less policymakers can do.
Lowering interest rates won't help unemployed factory workers find jobs in an industry they may not be qualified for, such as those in the health care field.
Bernanke "weighed in ... forcefully on one side," said Dana Saporta, an economist at Credit Suisse. "He's almost assuming responsibility in a larger sense for making things better."
Not all Fed policymakers agree with Bernanke's assessment. Narayana Kocherlakota, president of the Federal Reserve Bank of Minneapolis, pointed out in a speech in August that job openings have increased steadily in the past year, but the unemployment rate hasn't come down. It is currently at 9.6 percent.
Kocherlakota said a mismatch between the unemployed and the available jobs is likely the main reason.
"Firms have jobs, but can't find appropriate workers," he said. "The workers want to work, but can't find appropriate jobs."
That mismatch could be because workers aren't qualified or because they live in areas with high unemployment and can't move to where the jobs are. Because of the housing slump, many Americans owe more on their mortgages than their homes are worth, making it difficult to sell and move.
These factors limit what the central bank can do, Kocherlakota said.
"The Fed does not have the means to transform construction workers into manufacturing workers," he said.
Other economists who agree with Kocherlakota point out that some industries, such as auto manufacturing and construction, have been hit hard by the recession and workers in those fields will likely struggle to find new jobs.
While some workers have likely had to find work in new industries, Bernanke said, that trend "isn't particularly pronounced" compared to previous recessions. And after those recessions, economic growth was able to generate jobs for those who were out of work. High unemployment didn't persist after the downturns, he said.
Other economists who support Bernanke's view say that job losses have been widespread across almost all industries since the recession began in December 2007. They also note that job openings, while higher than a year ago, are still far below pre-recession levels.
Overall, Bernanke's remarks signal that the Fed is likely, at its meeting next month, to begin purchasing more Treasury bonds and perhaps take other steps to help the economy, Saporta said. The purchases would be intended to lower interest rates on mortgages and other loans and spur more borrowing and spending by households and companies.