Fed’s Brainard: Labor market disparities reducing U.S. economy’s potential

Labor market disparities in the U.S. economy are curbing the nation’s long-run potential growth, Federal Reserve Governor Lael Brainard said on Tuesday, as she urged the central bank to undertake more research to help diminish inequality.

“To the extent that disparities in income and wealth across race, ethnicity, gender, or geography reflect such disparities in opportunity…the disadvantaged groups will underinvest in education or business endeavors, and potential growth will fall short of the levels it might otherwise attain,” Brainard said at a Fed research conference on disparities in the labor market held in Washington.

In a speech entitled “Why persistent employment disparities matter for the economy’s health,” Brainard also said that high levels of income and wealth inequality could impact consumer spending.

U.S. central bank policymakers have in recent months broadened their policy debates to include such issues with Brainard in particular studying why communities get left behind.

In her speech, Brainard noted that unemployment rates were almost double for African Americans compared to whites but also that the jobless rate gap for adult black men compared to adult white men was at its smallest since data began to be collected in the 1970s.

“It seems likely that racial differences in unemployment rates will continue to shrink if the overall unemployment rate falls further,” she said.

The nation’s unemployment rate currently stands at 4.4 percent, near what many economists believe to be full employment. One of the debates at the Federal Reserve is how much slack is left in the labor market before inflation will be sparked. The Fed has raised interest rates twice this year.

Elsewhere, Brainard said that the disproportionate accumulation of wealth in urban areas since the recession along with historically low levels of migration across county and state lines could be a factor in the economic disadvantage of rural populations.

Other factors included the loss of industry through globalization and automation and an increase in opiod use.

Recognizing that the Fed has limited policy options to address the barriers that contribute to labor market disparities, Brainard nonetheless said it was still central to the Fed’s mission.

“Understanding these barriers and efforts to address them is vital in assessing maximum employment as well as potential growth,” Brainard said.
Source: Reuters (Reporting by Lindsay Dunsmuir; Editing by Andrea Ricci)

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