Y(output)=a function F of capital C and labor L.
This is a very simplistic representation of how things work. Capital goods and labor are the two major inputs to produce something. Typically a whole range of combinations of capital and labor can be used to produce something. The (theoretical) equilibrium would be found at that point where the marginal utility of the capital and labor inputs are equal. For the sake of simplicity lets just assume the production process was in equilibrium before the second great depression started. The reduction in interest rates, essentially to zero and, on a real basis to as low as –4%, substantially reduces the cost of capital, certainly compared to the rather rigid labor costs. The net effect is that producers will try to change the mix of the two input factors such that more capital will be used to the detriment of labor, that is jobs. This shift in mix is amplified further by recent tax and accounting changes that allow faster depreciation of capital assets and more favorable tax treatment.
That this is happening big time is clearly illustrated, for instance, by the number of geothermal units installed, compared to the sales of fire wood. The geothermal units are very expensive (capital intensive ) but require no labor once installed. Firewood is extremely labor intensive. You see this happening to a great extent especially in rural areas. It simple kills jobs.
The Fed. amazingly enough has not given much thought to this unintended side effect of their policy (another conundrum??). Rather than propping up the stock markets and hoping the wealth effect will kick in at some point (need another 35% up ,according to some), raising interest rates may do the job a lot quicker.