Experts and analysts weigh in.
Despite ongoing problems in the world today – reverberations from the covid pandemic, war in both Eastern Europe and the Middle East, the rising price of commodities and utilities, and a stubborn cost of living crisis – nonetheless in most developed and Western nations, the economies are proving surprisingly strong and resilient, with annual economic growth on an upward trajectory (even if marginally in some countries) and supposedly “full” employment.
But what exactly is full employment, how do you define such a term, and how can you accurately gauge it?
What is full employment?
According to market and labor experts, full employment is, essentially speaking, when all economic resources are being fully utilized so as to ensure that both skilled and unskilled workers have every opportunity for gainful employment in the job marketplace, and that both said workers are indeed employed at the highest level that can be realistically employed in the current economy at any given specific timeframe.
The term, of course, is slightly disingenuous as total full employment – ie, where literally and absolutely everyone who can work in an economy is doing so – is an impractical and unachievable illusion, for any number of reasons. So when economists refer to “full” employment, it’s more of a ‘this is as good as we can make it’ fudge than an absolute statement of realistic idealism.
Analyzing full employment
In a nutshell – and bearing in mind the term is more of euphemism than an actual statistical fact – full employment is analyzed within the context of those who are able and/or willing to work have no involuntary barrier to them doing so and are not unemployed of their own volition.
In fact, some economists are now stating that a certain manageable degree of unemployment is necessary in order to mitigate potential boom-and-bust inflation and also to allow leeway for jobs migration, or for workers to leave the employment sector temporarily to pursue further and higher education and to improve their existing skill set.
Another way to ascertain full employment is when the average wage index begins to rise, meaning there are so few workers in the marketplace available for certain jobs and professions that employers are having to raise salaries and enticing benefits to get open vacancies filled.
What percentage is considered “full” employment?
Most economists agree generally that a 5% maximum rate is considered as close to full employment as can be achieved, after taking into account individual extenuating circumstances. This means that employment has to be around 95% for a certain period of time – usually measured in ‘quarters’, ie, every 3 months – to ascertain a steady trendline that can be accurately assessed.
How do economists measure full employment?
The general principle for ascertaining full employment is a measure known as NAIRU, which is an acronym for Non-Accelerating Inflation Rate of Employment. What this does is effectively compare the current unemployment rate and overall shifts in the broader employment sector with the pace of inflation. If unemployment is assessed to be a certain number, it is thus analyzed to be at full employment, businesses are having difficulty finding new workers for vacancies, and thus wages, and thereby inflation, rises. However, if the inverse is the reality and there are too many workers looking for too few vacancies, thus inflation and wages remain stagnant.
Is the U.S. at full employment currently?
At the moment, the U.S. Congressional Budget Office estimates the current NAIRU rate in Uncle Sam to be around 4.6%, which is marginally above the current official unemployment rate of 3.9%. Theoretically, this means that America is in the ‘full employment’ range as assessed by economists and that wages should be increasing proportionally… except that wages are remaining stubbornly stagnant and not rising parallel to the unemployment rate given by the Department of Labor, and indeed some commentators have even suggested said Department may be cooking the books’ to give a more positive outlook for political reasons as the U.S. begins the cycle of another presidential election in 2024.
Time will tell…
