The U.S. unemployment rate might reflect the healthiest of job markets, but other evidence paints a less optimistic picture.
A reader recently sent me an email asking, “What ever happened to full employment?”
Just that. For people older than around 40, no more was needed. They remembered when the great American jobs machine could produce work for almost anyone seeking it, albeit with recessions coming along periodically.
Full, or maximum, employment is one of the Federal Reserve’s “dual mandates,” the other being price stability amid moderate long-term interest rates.
Fed officials were talking about the economy being close to full employment late last year and earlier this year.
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“Unemployment has reached what I see as its natural rate — that’s the optimal rate we should expect in a healthy economy — at 5 percent,” San Francisco Fed President John Williams said in a May speech.
Yet it doesn’t feel that way to many Americans, hence the reader’s question. And therein lies the tale.
First, a definition. Full, maximum or optimal employment doesn’t mean an unemployment rate of zero. Economists often place it around 4 or 5 percent. That reflects people who have lost or left jobs and are in the process of moving to another, otherwise known as frictional unemployment.
With the national unemployment rate at 4.7 percent in May, King County stood at 4.4 percent and Snohomish County at 4.8 percent. These rates meet the textbook definition of full employment. Washington state was higher, at 5.8 percent for the sixth consecutive month, and 6.1 percent in Pierce County.
On a seasonally adjusted basis, around 14.5 million net private-sector jobs have been created nationally since the trough of February 2010. That compares favorably to the 13.6 million created during the Reagan “boom” of the 1980s. The largest employment binge in history was in the 1990s, when more than 19.6 million new jobs were minted.
Yet the Great Recession was so severe — and the recovery so relatively weak — that the economy still faces a jobs gap. Calculated by the Hamilton Project, it stood at 1.6 million in May. In other words, those are the additional jobs the nation would have needed to make up the loss and also keep up with the natural growth of the labor force.
The Great Recession officially ended seven years ago this month.
But the jobs gap is only one reason why today’s “full employment” doesn’t feel right.
The U-6 unemployment rate, which includes people not actively seeking work (“discouraged workers”) and those working part time who want full-time jobs, is much better than at the worst of the recession. But it is still elevated for this far into a recovery.
Fewer Americans overall are working, a rate lower than any time since 1977. Labor-force participation stood at 62.6 percent in May compared with a record of more than 67 percent in 2000. The rate has been falling ever since.
Another measure is the employment-to-population ratio, or EPOP. It was 59.7 percent in May, compared with nearly 65 percent in 2000. The EPOP has never been so low at this stage of a recovery since the 1960s, after which large numbers of women began entering the workforce. Importantly, the percentage of adults of prime working age, from 25 to 54, who are employed is much lower than normal. Retiring baby boomers explains only some of this.
All these markers point to a labor market that is abnormal compared to its predecessors in the post-World War II era.
Some of the culprits are familiar to regular readers: federal austerity, the loss of middle-wage jobs, industry consolidation, offshoring of work, technology and companies spending record amounts of cash to buy back stock rather than hiring people. Age discrimination may play a role, too.
Another element is the long-term exodus of millions of prime working-age men from the labor force, a phenomenon highlighted by a report released this month by the White House.
It states, “This fall in the prime-age male labor force participation rate, from a peak of 98 percent in 1954 to 88 percent today, is particularly troubling since workers at this age are at their most productive; because of this, the long-run decline has outsized implications for individual well-being as well as for broader economic growth.”
The trend has worsened considerably since the turn of the century. Especially hard hit are men with only high-school degrees or less, with black men being affected the worst.
One major cause is the decimation of lower-skilled jobs. Education levels for men have been falling compared to those for women.
Even those in this cohort who are working have seen the biggest decline in their wages as factory jobs have disappeared.
Another reason is the nation’s high incarceration rate and the barriers to finding employment faced by those with a criminal record.
According to the report, Social Security disability accounted for only 0.5 percent or less of the decline. Fewer than a quarter had a working spouse supporting them. More than one-third of the men were below the poverty line.
America has one of the most “flexible” labor markets among industrialized nations. Employers can usually fire at will. But, as the administration’s economists point out, this may no longer be the advantage it once was.
The United States had the second-highest rate of prime-age men not in the workforce among major industrialized democracies in 2014. France and Sweden, with their generous social-safety nets, had 6.8 percent and 6.5 percent, respectively. It was 11.8 percent for the United States.
No wonder the attacks on neoliberalism by both Donald Trump and Bernie Sanders have gained such traction. For millions, “full employment” is a tragic joke.