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What is full employment? An economist explains the latest job data



The latest job report has called on a lot of analysts, politicians and speakers to wonder again if the US has full employment.

The Bureau of Labor Statistics reported on May 4 that the unemployment rate in the US had dropped to 3.9 percent. This is the lowest level since December 2000. The unemployment rate includes persons over the age of 16 who are actively seeking employment in their country Search calculation, meaning that students, retirees and others who are not working are excluded.

Does that mean that the economy has full employment? What is full employment?

For the typical person on Main Street, the idea of ​​full employment usually means that everyone works in the country, implying an unemployment rate of practically zero. That has never happened. The lowest unemployment rate ever achieved by the US in 1

944 was 1.2 percent. That was in the middle of World War II, when millions of men were drafted to fight and their jobs were occupied by women.

This popular concept sounds good, but economists like me lack the brand. Even in a full-fledged, robust economy, there will always be a certain number of people who have given up looking for work that is between jobs or whose skills are temporarily not needed.

Basically full employment is so few workers that companies have to start raising wages to get help.

Economists define full employment technically as it does whenever a country has an unemployment rate equal to or lower than the "non-accelerating unemployment rate". "That's from the sleepy acronym NAIRU.

Estimates of the measure are based on the historical relationship between the unemployment rate and changes in the inflation rate. If the unemployment rate is below this figure, the economy is full employment, businesses can not easily find workers, and inflation and wages typically rise, if not, then there are too many workers in need of a job, and inflation remains low.

At the moment, the Congressional Budget Office puts NAIRU at 4.6 percent, slightly above the unemployment rate of 3.9 percent, which means that the US has full employment – and that wages should rise – but until recently they have not gained much, which has confused many economists.

Besides the impact on wages, there is another reason Why it makes sense to understand the definition of full employment, maintaining one of the most important mandate e of the Federal Reserve set interest rates. The central bank tends to lower interest rates when unemployment is relatively high, and to increase it if it believes that the economy has full employment and wages are rising.

In other words, full employment is not when everyone has a job. Instead, inflation starts to rise because companies can not find enough workforce.

While the US may by definition have full employment, I can not be convinced until the paychecks rise

Jay L. Zagorsky, economist and scientist, Ohio State University


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