Are We Really at Full Employment?
The idiomatic phrase that enters in so often in economic discussions is that we are at full employment because the unemployment rate is low. While it’s true that we are at an unemployment rate that is the lowest that we’ve been in a very long time, I don’t think this statistic tells the whole story. The second piece of this story is the employment-to-population ratio. I think this goes a long way to explain why wages, until very recently, have not really been keeping pace with inflation. There are large segments of the population that really have not received a meaningful raise since 1970. By that, meaning inflation-adjusted increase in their payments, that they still are falling behind inflation. Minimum wage is clearly one example of that.
The missing link – the employment-to-population ratio
The employment-to-population ratio shows the lack of participation in the marketplace, that so many people have withdrawn from the labor market altogether. Possible causes:
- Permanent disability – During times of economic stress, more people go on permanent disability when they realize that they can’t find a good job.
- Transition – Things are evolving away from traditional fields, say for example in manufacturing and other areas.
- Skills mismatch – It’s going to take a long time for people to gain the kind of training that they need that’s meaningful in the next major employment cycle.
What the future holds
I don’t know when we’re going to see this employment-to-population ratio back to where it was prior to the last two recessions. While we have difficulty filling some particularly highly-skilled jobs, broadly speaking there’s still considerable slack in the economy, and I think that’s why the wages are not accelerating. And though we did get a little bit of good news early this year that wages had “surged” all the way up to 3%, we’re a long way from a broad swath of the economy seeing this bump.
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