Why courage fights unemployment: Fed Chair Janet Yellen explains
Initial jobless claims
Weekly initial jobless claims, as you can see in the chart below, are an indicator that measures the number of people filing for unemployment insurance for the first time. An increase in initial claims usually implies a slowdown in economic activity, whereas a decrease in initial claims means the economy is growing.
Economic activity is, to a great extent, linked to activity in the industrial sector. Industrial ETFs like the SPDR Industrial Select Sector Fund (XLI), which has companies like General Electric Co. (GE) and Boeing Co. (BA) in its portfolio, the Vanguard Industrials Index Fund (VIS), and the iShares Dow Jones US Industrial Sector Index Fund (IYJ) serve as good indicators of the industrial sector.
While speaking to her audience on the importance of courage and determination of people facing the challenge of finding a job in an economy that has yet to recover, Yellen shared the stories of three individuals in Chicago. Yellen highlighted the fact that according to research, employers are less willing to hire the long-term unemployed and often prefer other job candidates with less or even no relevant experience.
Yellen started with the story of Dorine Poole, who lost her job of processing medical insurance claims just as the recession hit the economy. Like many others, she couldn’t find any job, despite clerical skills and experience acquired over 15 years of steady employment. When employers started hiring again, two years of unemployment became a disqualification. Even those needing her skills and experience preferred less qualified workers without a long spell of unemployment. The situation seemed to have marked an end to Dorine’s career.
Yellen mentioned here that workers displaced by layoffs and plant closures who manage to find work suffer long-lasting and often permanent wage reductions. She then moved on to her second and third stories.
Jermaine Brownlee was an apprentice plumber and skilled construction worker when the recession hit, and he saw his wages drop sharply as he scrambled for odd jobs and temporary work. He’s doing better now, but still working for a lower wage than he earned before the recession.
Vicki Lira lost her full-time job of 20 years when the printing plant she worked at shut down in 2006. Then she lost a job of processing mortgage applications when the housing market crashed. Vicki faced some very difficult years. At times, she was homeless. Today, she enjoys her part-time job serving food samples to customers at a grocery store but wishes she could get more hours. Vicki is one of many Americans who lost a full-time job in the recession and seems stuck working part-time.
Yellen pointed out that the unemployment rate may have decreased, but it doesn’t include people who are working part-time but want a full-time job.
The next part of this series talks about Yellen’s stance on the unemployment rate not being a complete barometer of employment.