At his eponymous blog, Daniel Gross writes,
Full employment? Has he read the most recent jobs report from the Bureau of Labor Statistics? The employment-population ratio is 62.8 percent, lower than it was for all of the second half of the 1990s. This is not what full employment looks like.
Well maybe. The problem is what is meant by full employment. It is not some set number. Some lay people might think it is where the unemployment rate is zero. Others might think it is some really low number. To economists the notion of full employment is where unemployment is at the Non-Accelerating Inflation Rate of Unemployment (NAIRU for short). That is, where unemployment is just at the rate where if unemployment goes any lower the inflation rate will start to accelerate.
The problem is that the NAIRU is not some fixed number, either. It depends on the current situtation in the economy. So to say that just because the employment situation is different now than it was during the second half of the 1990’s is not exactly the way to go about it.
The second link (to a post by Brad DeLong) Gross provides does go about demonstrating why things are probably not at full employment. However, Brad’s post does more than simply look at the employment-population ratio. It also looks at the trend, and looks at two other series as well. In short, it is not sufficient to look at the past and say it is not as good. DeLong writes,
One way to gain more information about what is “trend” and what is “cycle” is to take a look at other time series indicators that we believe have a similar cyclical component. When the labor market is cyclically strong, we believe that the unemployment rate will be lower than trend, that the employment-to-population ratio will be higher than trend, that average hours worked will be relatively high (since firms are likely to increase both bodies and hours when their demand for labor is strong), and that the average duration of unemployment will be relatively low (because more of the fluctuations in quits, firings, and hires that drive the employment side of the business cycle are on the hires side).
Generally, though things haven’t been good for the employment situation, IMO. Typically, the payroll survey from the Bureau of Labor Statistics has been spotty at best in terms of job gains. And while the unemployment rate didn’t go up all the much by historical standards during the last recession, there also seems to have been no sudden drop in unemployment at the end of the recession either. The trumpeting of the periodic good payroll numbers and the total number of jobs added to the payroll data is really nothing to be excited about. By historical standards it has been fairly weak.
