How Far We Are From Full Employment

by: Modeled Behavior

By Adam Ozimek

A new note out from Daniel Aaronson at the Chicago Fed is a useful read for those interested in the question of how much slack remains in the labor market. Aaronson estimates that as of April, we are about 1 million jobs short of full employment, and that trend labor force growth is about 50,000 jobs per month. That means the job growth rates we have been seeing of around 200,000 per month would take a little over 6 months (from April) to take us to full employment. In other words, full employment between October and November.

However, other research from Aaronson suggests that trend employment growth could be 70,000 a jobs a month, and that the trend unemployment and participation rates are somewhat more optimistic. Under these assumptions, the market wouldn't reach full employment until the second half of 2017.

In any case, reasonable estimates continue to suggest we have between 6 months and a year left to grow until we reach full employment. And of course, there is the question about whether prime labor force participation from 1990 to 2007 was weighed down by trade shocks. In this case, what we think of as full employment may be something we can improve upon.