In my framework for assessing the economy, full employment generally means an economy - and by extension a labor market - that's performing at full potential. This is typically reflected in very low unemployment numbers, like the sub-4% rates we've seen over the past year. For a more complete read, I also look to a wider set of labor market indicators, like measures of underemployment that take into account those who are out of the labor market or are stuck in part-time jobs. These and other measures, like job openings and quit rates, have all met or moved beyond their values from past peaks. This suggests that the labor market is at or near full employment.
One indicator that seems to be sending a different signal is labor force participation - the fraction of the population that's working or looking for work - which is still below its pre-recession level. However, participation overall and among key demographics had been trending down prior to the recession. This suggests that long-term factors - rather than short-term, cyclical factors - are at play. For example, the baby boom generation is aging out of the workforce while advances in technology are changing the types of available jobs. These developments contribute to the observed decline in participation.
While monetary policy can't directly address these challenges, a sustained strong expansion can certainly help. In addition, policies that equalize opportunity and access to higher education, or those that help new parents remain in the labor force, could help reverse the downward trend in participation. In doing so, these policies would also boost our economy's longer-term growth potential.
To sum up, the labor market remains strong, but with a broad range of public policies, further improvement in labor market outcomes can be achieved over time.
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