The New York Times reported this week that Fed Chair Jerome Powell is sufficiently concerned about the decline in female participation in the labor force that he suggested on Wednesday that improved child care support might help pull more women into the labor market.
The Fed chief studiously avoided commenting on most specific government policy proposals during three hours of wide-ranging testimony before the House Financial Services Committee. But he did acknowledge that enabling better options for affordable child-care is an “area worth looking at” for Congress.
“Our peers, our competitors, advanced economy democracies, have a more built-up function for child care and they wind up having substantially higher labor force participation for women,” Powell said. “We used to lead the world in female labor force participation, a quarter-century ago, and we no longer do. It may just be that those policies have put us behind.”
Powell limited his supportive comments but stressed the near-term need to help workers who have been displaced from their jobs during the pandemic. He made it clear that the labor market remains “far from healed, that the pandemic's economic fallout has disproportionately hurt women and minorities and that both Congress and the central bank have a role to play in supporting vulnerable families until the economy has recovered more fully.”
Women's labor force participation had climbed for decades in the U.S. before stalling out — and then actually dropping slightly — starting in the 1990s. Powell commented that adult U.S. women hold jobs or look for them at lower rates than women in some other major advanced economies, such as Canada or Germany.
Powell noted that the Federal Reserve Bank of San Francisco had examined the question of why the share of Canadians who work or look for jobs had climbed even as the U.S. rate had fallen. The report concluded that most of the gap came from declining participation by women. “And they pointed to caregiving policy differences as a likely culprit,” he said.
“Parental leave policies in Canada provide strong incentives to remain attached to the labor force following the arrival of a new child,” the paper, written by the San Francisco Fed president, Mary Daly, and co-authors, pointed out. The fact that child care responsibilities fall heavily on women in the United States has come under a brighter spotlight during the pandemic which has shuttered schools and disproportionately left women bearing added child care responsibilities.
While women lost jobs less dramatically than men during the 2009 recession, their employment rate is down by about as much as men's is now — so, in measures of the share of people who are either working or looking, women have lost more ground. Female participation dropped 2.1 percentage points to 55.7% in January compared with February 2020, whereas men's participation has dropped 1.7 points to 67.5%.
Throughout his tenure as Fed chair, Powell has been keenly focused on the job market and has repeatedly argued that both monetary and fiscal policymakers should support displaced workers so that they can make their way back into jobs when the economy reopens.
While the Fed can help the economy and the job market improve broadly, helping individual groups in a targeted way is generally left to elected officials. Still, the Fed says it intends to help foster conditions for strong economic growth overall which pulls people into the labor market and helps set the stage for higher wages.
Officials are trying to do that by keeping interest rates low and buying large quantities of government-backed bonds, policies that can fuel both lending and spending.
Powell has been pledging for months that the Fed would use its policies to help the economy get through the pandemic but political concerns that big government spending could fuel economic overheating are now increasing. Still, Fed officials argue that weak price gains, not runaway ones, are the modern problem.
Powell reiterated that message Wednesday and commented that the Fed is still “trying to bolster prices. We believe we can do it, we believe we will do it. It may take more than three years,” he said.
The Fed tweaked its approach to monetary policy in 2020, saying that it would aim for periods of slightly higher inflation and that it would no longer seek to cool off the economy just because the unemployment rate was falling — an approach Fed governor Lael Brainard explained to a Harvard economics course Wednesday morning.
The Fed was relatively patient in lifting interest rates after the 2007 to 2009 recession — leaving them near zero until 2015 and then raising them slowly, as unemployment dropped to 50-year lows. Workers who had been counted out began to re-enter the labor market and employers started to go to greater lengths to recruit and train talent.
“At very low levels of unemployment” the United States “saw benefits going to those at the lower end of the spectrum—which means disproportionately African Americans, other minorities, and women,” Powell said. “With our tools, what we can do, is try to get us back to that place.”
So, we will see. Clearly, Powell and other Fed officials are convinced of the strength of their policy positions and are determined to continue to work to strengthen investment. This is a tense moment for advocates of highly interventionist policies in both monetary and fiscal arenas, fights that producers should watch closely as they intensify, Washington Insider believes.