Another sign economy at full employment


U.S. Bureau of Labor Statistics, Job Openings and Unemployment Level [UNEMPLOY], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/UNEMPLOY, August 8, 2018.

In another sign that the U.S. economy is at, or near, or maybe even past, the sustainable full employment level, Job openings in the United States as measured by the U.S. Bureau of Labor statistics have passed the total number of unemployed persons in the economy, as measured by the same Bureau of Labor Statistics. In the most full sense of the word the full employment level of the economy is when it is working at a level where all available resources are being used to produce goods and services. Resources include all available labor resources as well as all available capital resources, so there is no idle labor and no idle factories and equipment. In an economy like that workers can find jobs easily, can switch jobs easily to move to better opportunities, and manufacturing facilities that can technically run 24 hours a day using multiple, usually 8 hour shifts and there will be an increase use of overtime hours. In addition, retail establishments and restaurants will be extending opening hours.

It is a judgement call by economists and statisticians and the Federal Reserve about exactly when the economy has reached the full employment level. Factors to consider are that the count of the unemployed and the count of the number of job openings depends on the official definitions of unemployed and job openings used. One has to choose a precise definition of something in order to count it and for the terms unemployed and job opening this is no easy task. But the definitions must be precise and, to be useful, once chosen, they need to be adhered to so that a useful time series can be established that traces the course of changes in economic tightening of the economy. The definitions used by BLS are reasonable, but it is true that alternative definitions could show different results at any given moment in the economy. So it is the trend or movement over time that is giving the important information to economists and policy makers. And the numbers show that since 2010 job openings in the U.S. economy as measured by the definitions used by BLS have risen almost continuously, and the number of unemployed has decreased, so that by the first quarter of 2018 they were very close to being equal.

Note however, that these aggregate numbers say nothing about the skills or experience of those that are unemployed and the skill and experience level that employers are attaching to their job openings. And note that other data show that wage increases have barely kept up with even the mild level of inflation or price increases in the economy. That wages have not been rising is especially important in reaching a judgement as to whether the economy is at full employment. Many economists would be reluctant to label the economy at full employment with at least some sign of upward pressure on wages. As to possible mismatches between the skills of the unemployed and the skills required by employers, economists would like to see some increased efforts from employers offering to hire workers who don't have the exact skills needed and to offer training so as to bring them up to speed. In addition to differences in skills of workers and skills needed by employers there may be differences in where the unemployed are located and where the jobs are. In a vigorous full employment economy we should see more movement of unemployed workers from areas with fewer jobs to those where jobs are more plentiful, and we should see employers offering incentives to workers to make that move, for example by offering moving expenses.

But there is no denying that the numbers on job openings and the unemployed show a tightening of the economy. It is the continuation of the long arduous climb out of the Great Recession, a climb that was the hall mark of the Obama administration and that has continued under Trump. Now, the task is trying to tame the economy so that we don't repeat past mistakes of overheating the economy, leading to inflation and rising interest rates and increasing debt. It is troubling that under Trump, U.S. government debt, even as a percentage of our Gross Domestic Product, has been rising when in a full employment economy sound policy calls for that to level off or to decrease. That combined with a pending trade war using tariffs and treats of tariffs could throw this recovery off the rails.

For more on how BLS measures job openings and unemployment see

https://www.bls.gov/news.release/jolts.tn.htm

https://www.bls.gov/cps/cps_htgm.htm

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