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Fed in 2011 joked about jobless, blamed drugs, work ethic for unemployment

A man walks past the U.S. Federal Reserve building in Washington.
Kevin Lamarque | Reuters
A man walks past the U.S. Federal Reserve building in Washington.

With the economy still reeling from the financial crisis and unemployment running high in 2011, officials at the Federal Reserve blamed drugs for the much of the problems, and joked about people who couldn't even fill out job applications properly.

Recently released transcripts from Federal Open Market Committee meetings provide a window into how central bank leaders saw the jobless problem. The FOMC is the central bank's policy-making arm and includes regional presidents and Fed governors from across the country.

The Nov. 1-2, 2011 meeting featured some lighthearted banter about the economic problems bedeviling the country, as well as serious discussion about solutions.

Unemployment averaged about 9 percent through the year after peaking at 10 percent in October 2009. At the time, the world also was preoccupied with a sovereign debt crisis in Europe and an anemic U.S. economy that saw GDP growth of just 1.6 percent in 2011.

For some members, though, the problems went beyond policy.

"I frequently hear of jobs going unfilled because a large number of applicants have difficulty passing basic requirements like drug tests, or simply demonstrating the requisite work ethic," then-Philadelphia Fed President Charles Plosser said at one point.

He went on to relate an anecdote from one contact.

"As an example, one contact in the staffing industry told us that during their pretesting process, a majority — actually, 60 percent of applicants — failed to answer '0' to the question of how many days a week it's acceptable to miss work," Plosser said.

The transcript notes "laughter" after the observation. The remarks were first reported in The Intercept.

Charles Plosser, president of the Federal Reserve Bank of Philadelphia.
Adam Jeffery | CNBC
Charles Plosser, president of the Federal Reserve Bank of Philadelphia.

The meeting had multiple jocular moments, with "laughter" noted 57 times. The meeting began with then-Dallas Fed President Richard Fisher apparently paying off a World Series bet with St. Louis Fed President James Bullard.

The St. Louis Cardinals beat the Texas Rangers four games to three, with the payoff for Bullard being Shiner Bock beer.

Plosser had been one of the FOMC's few hawkish members, meaning he favored tighter policy and believed the Fed's historically loose measures had run their course.

In response to the crisis, The Fed cut its overnight funds rate to near-zero, and expanded its balance sheet to $4.5 trillion through a monthly bond-buying program known as quantitative easing (QE).

Though they differed ideologically on the Fed's path, Plosser and some other members agreed that the problems went deeper than policy.

Atlanta Fed President Dennis Lockhart, who is retiring in February, noted that "a great deal is going on in labor markets that we don't fully grasp."

"For a variety of reasons, employers seem to be paying much more attention to the quality of prospective hires than pre-recession," he noted, later observing, "I am somewhat skeptical of the capacity of monetary policy measures to speed up the process."

Fed critics believe the ultra-accommodative policy was effective in driving up the stock market, which benefited the upper end of wage earners. However, it did so at the expense of savers and pensioners who saw little return under zero interest rates, some argued.

Former President Barack Obama left office earlier this month with economic growth never hitting 3 percent for a full year through both his terms.

When it came to the jobless problems, Richmond Fed President Jeffrey Lacker said getting jobs filled was a drug problem.

Lacker related that "an employment agency in West Virginia [said] that unquestionably the biggest problem in hiring skilled and unskilled workers was the inability to pass a drug test."

"Drug abuse and the hardship involved in unemployment aren't really laughing matters,," he said, adding that "it's hard to pin this down quantitatively, but it strikes me that there could be something meaningful there as a contributor to impediments to labor market functioning."

The unemployment rate has slipped to 4.7 percent since that meeting. However, wage pressures remain muted and economists continue to cite a skills gap that has prevented the labor market from making stronger gains.

An unemployment gauge that includes discouraged workers and those at work part-time for economic reasons was 15.5 percent at the time of the November 2011 Fed meeting; it has since dropped to 9.3 percent.

However, the labor force participation rate remains mired around levels not seen since the late-1970s and the employment-to-population ratio is lower than it was pre-crisis.