5  Specifically, the trends generated by Chicago Fed economists’ preferred models are very close whether they are estimated using data through 2002, 2007 or 2014. 6  See, for example, Acemoglu and Autor (2011) and Charles, Hurst and Notowidigdo (2013). See Shierholz, Mishel and Schmitt (2013) for a skeptical view. An alternative explanation is based on changes in the use of social safety net programs, especially disability insurance (DI), that are partly cyclical in nature. The DI rolls have been increasing throughout this business cycle, although they have been on the rise, more or less uninterrupted, since the 1990s (Autor, 2011; and Burkhauser and Daly, 2011). The DI program tends to be cyclical partly because eligibility standards ease amid deteriorating labor market conditions (Mueller, Rothstein and von Wachter, 2013). That is, people with moderate disabilities are more likely to qualify for the DI program when there are fewer suitable jobs available. BIS central bankers’ speeches  3  high this summer. 7 Yet, despite some improvement, the JOLTS hiring rate remains disappointingly below where it stood before the recession began. 8 Why might firms report many more openings but be slower to fill them? Posting a vacancy is only part of the hiring process. Jason Faberman of the Chicago Fed, in collaboration with Steve Davis of the University of Chicago and John Haltiwanger of the University of Maryland, estimate that the overall effort that firms actually are putting into filling a job vacancy fell by over 20 percent during the recession.
Despite the headwinds from continuing debt-overhang and recent financial distress, European authorities in 2011 judged that the eurozone economy was emerging from recession and headline inflation was at risk to rise persistently above target. The European Central Bank (ECB) responded by raising policy rates in 2011. The ECB soon had to backtrack as output in the eurozone fell again and inflation began to march down below target. Today, the eurozone faces continued economic weakness and an inflation rate that is just about 1/2 percent. As a result, the ECB recently lowered policy rates to the ZLB, has started undertaking additional unconventional monetary policies, and is now encouraging fiscal expansion among eurozone countries that are able to do so. These lessons from monetary history strongly suggest that there are great risks to premature liftoff from the ZLB or near-ZLB conditions. Unless economic conditions are fundamentally strong and the previous impediments to growth have receded sufficiently, the odds remain high that monetary authorities will need to retreat right back into the ZLB. And the costs of being mired in the ZLB are simply very large. The ZLB prevents using our very best policy tools to address negative shocks. The ZLB means that interest rates cannot fall low enough to equate the supply of saving with the demand for investment, which, of course, significantly impedes capital formation, future economic growth, and the health of labor markets.