We're Still Not at Full Employment

I suggest reading the whole article at the following link.

http://cepr.net/blogs/beat-the-press/taking-issue-with-paul-krugman-we-re-still-not-at-full-employment


Feb. 5, 2018

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There are a few points to be made here. First. Krugman rightly notes the aging of the population pushing down the overall labor force participation rates. However, employment-to-population rates for prime-age workers (ages 25 to 54) are still below pre-recession levels and well below 2000 levels. The falloff is pretty much across the board, applying to both men and women and both more educated and less educated workers (not all by the same amount) suggesting that a supply-side explanation is not likely. In other words, there is reason to believe that if there were more demand, more people would be working.

While the 4.1 percent unemployment rate is low by the standards of the last 45 years, it is worth noting that other major economies (e.g. Japan and Germany) now have far lower unemployment rates than almost any economist thought plausible just four or five years ago. I don't see any reason to believe that the US unemployment rate can't fall to 3.5 percent, and possibly even lower, without kicking off an inflationary spiral.

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These figures give us good reason to believe that the labor markets can get considerably tighter before we start to see serious problems with inflation. This is an important issue because if we allow the Fed to crack down when there is still room for the economy to expand further we could be needlessly keeping millions of people from getting job and tens of millions from getting pay increases.

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