We are not yet at maximum feasible employment: Jared Bernstein: Employment breakeven levels: They’re higher than most of us thought

200,000 a month in payroll employment growth with a stable unemployment rate and no sign of wage growth acceleration means that we are not yet at maximum feasible employment: Jared Bernstein: Employment Breakeven Levels: They’re higher than most of us thought : “We know neither the natural rate of unemployment nor the potential level of GDP…

…As Alan Blinder recently put it: “For [the natural rate] to be useful you have to have at least a little confidence you know the number. You don’t need to know it to two decimal places, but within a reasonable range. If your range is 2.5 to 7, that doesn’t tell you anything.” This post is about a related number… the jobs breakeven level (BL), or the monthly, net change in payroll employment that’s consistent with a stable unemployment rate…. Back in mid-2016, when I was writing about this, economists thought the BL was roughly between 50,000-100,000… This prediction now looks off. For the past six months, the jobless rate has held at 4.1% while payrolls are up an average of 211,000 per month, on net. Why hasn’t faster job growth led to lower unemployment, as most economists would have predicted a few years back? The answer must be that there’s more labor market capacity than folks thought there was….

The climbing of the prime-age (25-54) employment rate and LFPR. Neither are back to their pre-recession peaks, but especially the prime-age employment rate is clawing its way back. In fact, prime-agers have recovered 4.4 out of 5.5 percentage points, or 80%, of their decline over the course of the recession. Prime-age men, whose employment rates have suffered a longer-term decline, have made back 76% of their loss; women have done better, clawing back 90%. So, economists need to update their BLs to accommodate some unknown degree of labor supply that we formerly discounted…. The punchline… the fact that we’ve been adding an average of ~200K jobs a month, while unemployment sticks around 4%, along with, importantly, tame wage and price outcomes, means that we must not yet be at full employment.

April 18, 2018


Brad DeLong
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