Janet and the Giant Elephant

The U.S. labor market was the theme for this year's Kansas City Fed's Jackson Hole symposium. As I read Janet Yellen's speech, and listened to an interview with Philadelphia Fed president Charles Plosser I found myself mystified by the supposed mystery over the presently high level of part-time employment. Although, I suspect it's more a case of omission than it is dimwition. Remember, the Fed Chair is appointed by the President. Thus, acting, as well as aspiring, chairs will choose their words carefully...

Here's Janet Yellen: 

A second factor bearing on estimates of labor market slack is the elevated number of workers who are employed part time but desire full-time work (those classified as "part time for economic reasons"). At nearly 5 percent of the labor force, the number of such workers is notably larger, relative to the unemployment rate, than has been typical historically, providing another reason why the current level of the unemployment rate may understate the amount of remaining slack in the labor market. Again, however, some portion of the rise in involuntary part-time work may reflect structural rather than cyclical factors. For example, the ongoing shift in employment away from goods production and toward services, a sector which historically has used a greater portion of part-time workers, may be boosting the share of part-time jobs. Likewise, the continuing decline of middle-skill jobs, some of which could be replaced by part-time jobs, may raise the share of part-time jobs in overall employment.¹² Despite these challenges in assessing where the share of those employed part time for economic reasons may settle in the long run, the sharp run-up in involuntary part-time employment during the recession and its slow decline thereafter suggest that cyclical factors are significant.

All intelligent presumptions, I'm sure. But my how Janet is ignoring avoiding evading the giant elephant in the room: Which is the simple fact that when you raise the cost of something you get less of it. In this instance, we're talking full-time employment. When government mandates an increase in the price of full-time labor---which (right or wrong) it has with the Affordable Care Act's employer mandate, which goes into effect in 2015/2016---well, you get less full-time labor. 

After pointing out that the fed funds rate has been at zero for 5+ years---and unemployment has come down measurably of late---Plosser acknowledged that part-time employment remains relatively high. He stated that:

Something else is going on in this economy other than traditional labor market slack.

Yep, and I'll bet that over a cup of coffee he'd point to government's intrusion into the labor market as being a big component of that "something else." 

I have to say, on monetary policy, I was impressed with some of what Plosser had to say:

I would like to see a stronger and better labor market. But, having said that, it's not obvious at all to me anymore that monetary policy is the solution to fixing the problems in the labor market.

Ah, one small step toward the reality that Hayek pointed out years ago:

"The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design."