Fed Vice Chair Fischer Talks Labor Participation and Mobility

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Outside of Chair Janet Yellen, the Federal Reserve’s Vice Chairman Stanley Fischer is one of the most closely followed people in the financial markets. Speaking at the Convocation for the Department of Economics, Howard University, Washington, D.C., he generally was talking about the need for why people should study economics.

Perhaps you have heard that the good stuff is what people say on top of what they meant to say. Fischer also brought up why participation in our nation’s labor force is declining. And he addressed what can possibly be done to improve economic mobility in an effort allow economic growth for children from all groups and from all areas of the country.

The proportion of adults participating in the labor force has declined substantially over the past decade. On this note, Fischer said:

The decline has reflected, in part, the severe economic recession. Millions of people lost their jobs, and many of them experienced great difficulty finding new employment. Some of these people became discouraged and stopped looking for work. In other words, they dropped out of the labor force. However, much of the decline in labor force participation reflects factors that precede the recession. Most significantly, our population is aging, and older people participate in the labor market at lower rates than younger adults. In addition, the labor force participation of prime-age males–that is, individuals aged 25 through 54–has been declining since the mid-1960s, particularly among those with only a high school degree or less education, and has continued to decline in the years since the last recession.

Fischer outlined several other issues from economists on this matter:

Some economists have emphasized the role of public assistance programs, such as disability insurance.

Some evidence suggests that public assistance income has likely played a role.

Other economists have put more emphasis on the effects of the reduction over time in the demand for lower-skilled labor.

The slump in demand for lower-skilled labor likely also reflects the effects of globalization, including competition from goods produced and imported from abroad.

Fischer also spoke about economic mobility varying substantially across the United States. He pointed out that the odds of a child from the bottom quintile of the income distribution reaching the top quintile of income as an adult are 11% in Washington D.C. — but only 4% in the Charlotte, North Carolina, region. He also noted that mobility is significantly lower in areas with greater residential segregation in terms of race and income. Mobility also drops in areas with greater income inequality, less family stability and lower-quality schools.

Another issue is talking up the need for more diversity in the study of economics itself. Fischer said:

I will conclude by discussing diversity in the economics profession. Our profession currently is not very diverse, but it needs to be. Only about one-fourth of tenured and tenure-track faculty members in U.S. academic economics departments are women, and only around 5 percent are African American or Hispanic. Yet research conducted by economists as well as other social scientists suggests that a diversity of perspectives and ideas lead to better decisions and increased productivity. In my own experience, economic policy decisions are better when informed by a wide range of views and experiences. You all here today are crucial to the future of our profession.

This might not have any market-moving data in it, but Fischer’s points here are on top of much more recent discussions around the need for more diversity.

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