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posted on 10 June 2017

Full Employment Varies By One's Point Of View

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Some pundits are saying the USA is far from full employment, and others saying the USA is at full employment. Each pundit comes with evidence to support their point of view.

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It is a commonly held belief that full employment is when unemployment is roughly 4.5% - and the current unemployment rate is 4.3 %.

I find most of the pro or con arguments on full employment compelling (as they are based on historical data) - although I am in the camp that the USA is far from full employment. My belief is that the USA employment exists in three worlds:

  • higher income urban areas

  • lower income urban and suburban areas

  • rural

The majority of the population lives in urban areas, and the higher income urban areas seem much closer to (or even at) full employment. Consider my rationale:

  • goods producing businesses tend to locate close to customers [this is normally in high population areas]

  • businesses which support goods and services tends to locate close to what they support [this is normally in high population areas]

  • businesses which require skilled workers need to locate where pools of employees with the proper skills reside [this is normally in high population areas]. This causes similar business to cluster (think of Silicon Valley).

  • as business clusters in the urban areas, it drives up real estate prices and consumer demand - and drives the lower skilled people out of their area due to higher cost of living (especially housing). There still is employment demand for the unskilled in these urban areas - and it means overeducated are taking the lower skilled jobs.

I live in a zipcode which has one of the highest costs of living in the USA - but some surrounding zipcodes have significantly lower costs and incomes. My ancedotal observations confirm both sides of the full employment argument.

But WHY is full employment such a hot button issue? Economists have the view that as full employment is reached (whatever that point is), inflationary pressures start to build. But there seems to be little correlation between income and inflation.

Let us say there is a metric which can be used to gauge full employment other than the metric of wage inflation? There has been a rash of employment articles on millennials where some suggest that there is a growing trend towards self-employment (contract worker). The graph below shows the level of self employment - which remains well below the peak in the 1990s / early 2000s when many claim that the USA was at full employment.

Is the self-employment level an accurate gauge for full employment? I think not as a stand-alone metric, but it is just one more piece of conflicting data points which can be added to the discussion of full employment.

Other Economic News this Week:

The Econintersect Economic Index for June 2017 continues to forecast normal growth for the second month in a row. Six-month employment growth forecast indicates modest improvement in the rate of growth.

Bankruptcies this Week from Rooster Energy Ltd., Ignite Restaurant Group

Weekly Economic Release Scorecard:

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