According BNP Paribas economists, the Bureau of Labor Statistics’ jobs report for February shows that the US economy has finally reached full employment. “Full employment” means that the economy has reached the lowest level of employment where there is no excess demand for workers. This unemployment level is also referred to as the “natural rate of employment.”
Currently, according to the Federal Reserve’s Federal Open Market Committee, America’s natural rate of unemployment is somewhere within the range of 5.2% and 5.5%. The February jobs report states that unemployment is now at 5.5%, meaning that it is within the upper bound of current full employment estimates.
When an economy reaches full employment following a recession, mainstream economists consider the economy to be more or less recovered. But does this aggregate statistic really provide an accurate description of the state of the economy? If we look at an additional piece of data that this statistic tends to obscure, as well as apply some Austrian business cycle theory, the economy may not look so rosy after all.
Looking at the BLS’ February jobs report, we will see that the labor force participation rate has been between 62.7% and 62.9% for the last year. This number means