Posts filed under “Employment”

Close But Not There Yet: Getting to Full Employment in the United States
By Ravi Balakrishnan and Juan Solé
iMFdirect April 28, 2015

 
Last month’s report on U.S. jobs was disappointing, with far fewer jobs than expected added in March. A longer-term look at trends yields a different picture, however. Over the past year, U.S. job creation has been impressive. Payroll gains have averaged 260,000 per month—well above the 160,000 monthly average seen throughout the 2010–13 recovery.

As a result, the unemployment rate has plummeted to 5.5 percent in March 2015 (see Chart 1). And this level is just above many estimates of the current “natural” level of unemployment—the rate of unemployment that would prevail once cyclical factors have played themselves out and the economy is growing at trend. Some argue that a negligible difference between the unemployment rate and the natural rate—the so-called unemployment gap—is equivalent to full employment.

Chart 1

So, is the U.S. approaching full employment? It’s close.

The answer to this question has crucial policy implications. How close the U.S. economy is to full employment will guide the Fed’s decision on when and how fast to increase interest rates. And as the “taper tantrum” of 2013 illustrated all too well, changing perceptions of Fed policy have major implications for the global economy and financial markets.

In this blog, we argue that notwithstanding signs of improvement in the labor market, slack remains. This points to a still important role for accommodative macroeconomic policies. And we shouldn’t forget about policies to expand the quantity, and improve the quality, of the labor supply.

More slack than meets the eye

While a shrinking unemployment gap suggests that we are approaching full employment, the employment-to-population ratio paints a different picture (Chart 2). Indeed, this ratio, which measures how many of those able to work are actually employed, is still more than 4 percentage points below its level on the eve of the Great Recession.

Chart 2

What could cause such a disconnect? Well, to begin, there are workers who want and are available for work but did not search for jobs in the last 4 weeks and hence were not classified as unemployed (these are the so-called “marginally attached” workers). Moreover, there are still numerous part-time workers that would like to work more hours but cannot as businesses continue to face difficult conditions. Adding these components to the unemployment rate suggests that some labor market slack remains (Chart 3).

Chart 3

As Fed Chair Janet Yellen has emphasized, a fuller picture of the labor market requires looking at other factors beyond the unemployment rate. These include gauges of labor market dynamism such as job openings, hires, and quits, which have recovered to precrisis levels (Chart 4). The growing number of quits is particularly encouraging as it signals that people are more confident to leave their current job in pursuit of higher-paying, better-fitting opportunities.

Chart 4

A comprehensive measure of slack 

To recap, by some important measures (like the unemployment rate), the labor market has made a phenomenal comeback from the depths of the Great Recession. Yet, there remain key areas where the crisis legacies are being slowly worked through (such as the outsized ranks of the involuntary part-timers or the current labor force participation rate that is below its trend).

To bring all these elements into a single measure of slack, our recent study computes a broadly defined “employment gap” that includes deviations of unemployment and participation rates from their trend or natural levels, and adjusts for the large number of involuntary part-time workers.

As one would expect, our measure shows the emergence of a substantial employment gap in the aftermath of the Great Recession, largely driven by bulging unemployment and part-time gaps. The participation gap, in turn, started to grow from 2010 onwards, as the prolonged recession led many to become discouraged and abandon the work force (Chart 5). It is this legacy that the labor market has been working through. Today, with an unemployment rate that has fallen to well within 1 percentage point of most estimates of the natural rate of unemployment, the remaining slack stems mainly from the participation gap, and to a lesser extent from the part-time gap. Looking ahead, we expect that overall labor market slack will disappear by 2018.

However, some uncertainty surrounds the underlying structural components of our estimate. Different assumptions could extend the date of full labor market recovery by up to one year. For instance, a lower natural rate of unemployment, a higher participation rate trend, or a lingering part-time gap would push the closing of the gap to 2019.

How to reduce the slack

Our measure of the employment gap suggests that labor market slack remains and will only decline gradually, pointing to a still important role for accommodative macroeconomic policies to help reach full employment.

In addition, given the continued decline of the participation rate, policies to expand the labor supply are vital to boost potential growth in the medium term. Key measures range from enhancing job search and training programs—to raise human capital and productivity —to targeting benefits for low-income families (for example, childcare support). Finally, immigration reform ought to be part of the solution. To counter the effects of an aging population, the United States should augment its visa program for high-skilled immigrants. This would not only enhance the size and productivity of the workforce, but also help shore up the government’s fiscal position.

Category: Employment, Think Tank

Job Skills Companies Want But Can’t Get

Click for the full report. Source: Bloomberg From Bloomberg: Business schools are supposed to produce graduates who have the abilities companies need most. But corporate recruiters say some highly sought-after skills are in short supply among newly minted MBAs. As part of our ranking of 122 top business programs, Bloomberg surveyed 1,320 job recruiters at…Read More

Category: Corporate Management, Employment

Category: Employment, Think Tank

Jobs: More Slowly Created, More Slowly Destroyed

Category: Employment, Think Tank

Jobless in Seattle? Not Yet, Anyway. Part 2

@TBPInvictus On Wednesday, I threw in my $0.02 about the controversy surrounding the increase in Seattle’s minimum wage. Unlike any of those who have been decrying the new law and its impact, I used some data to demonstrate the absence (as yet) of any ill effects. Specifically, I looked at restaurant permit issuance and found…Read More

Category: Current Affairs, Data Analysis, Economy, Employment, Really, really bad calls

Jobless in Seattle? Not Yet, Anyway.

@TBPInvictus Barry wrote yesterday about how political bias can corrupt economic analysis. It’s something he and I discuss all the time and are always on the lookout for. We’ve documented over the years how leaning too heavily on one’s politics is a recipe for disaster when it comes to asset management. In the wealth management…Read More

Category: Current Affairs, Data Analysis, Economy, Employment, Really, really bad calls

How much weight does the FOMC put on inflation vs unemployment?

From Torsten Sløk, Ph.D.: When I discuss the timing of Fed liftoff with clients it is essentially a debate about how much weight the FOMC puts on inflation and how much weight they put on the unemployment rate. If you believe they put a high weight on inflation, then they will not raise rates anytime…Read More

Category: Employment, Federal Reserve, Inflation

Majority of Hires Never Report Looking for a Job

Majority of Hires Never Report Looking for a Job Carlos Carrillo-Tudela, Bart Hobijn, Patryk Perkowski, and Ludo Visschers FRBSF, 2015-10 March 30, 2015         Every month, millions of workers search for new jobs although they already have one. About one-tenth of these searchers switch employers in the following month. However, most of the…Read More

Category: Employment, Think Tank

Labor Market Slack and Monetary Policy

Category: Employment, Federal Reserve, Think Tank

More Signs of Wage Inflation

From Torsten Sløk of Deutsche Bank: The first chart below shows that over the past year employer costs have risen significantly. The second chart shows that the rise is driven partly by a significant increase in bonuses. The third chart shows that the uptrend in wages can been seen across all parts of the services…Read More

Category: Employment, Inflation, Think Tank, Wages & Income