Long Term Perspective

The civilian unemployment rate can reflect the degree of tightness in the labor market. The unemployment rate generally associated with "full employment" – the level that causes wage pressures to begin heating up – is about 5 percent. The question of the "full employment rate" is widely debated among academics and policymakers, and the full employment rate changes over time depending on the demographic structure of the labor force. Given that the jobless rate depends not only on the number of unemployed workers, but also on the number of people in the labor force, it is important that both figures are adequately measured. As suggested in our comments regarding the labor force participation rate, the unemployment rate could be inaccurately measured if potential workers are not hunting for jobs because they do not think that they would be able to find employment.

 

Note that the employment-to-population ratio moves inversely to the jobless rate. A falling unemployment rate is associated with a rising employment-to-population ratio. While the jobless rate declined to 5 percent by the middle of 2005 and even briefly below 4.5 percent in late 2006 and early 2007, the employment-to-population ratio never recovered. This measure allows one to analyze the employment situation without worrying about changes in the labor force. Taken together, the jobless rate and the employment-to-population ratio give a more accurate picture of the labor market.

 

 

Short Term Perspective

The civilian unemployment rate fell 1 tenth in October 2015 to 5.0 percent where it held in November. But the employment-to-population ratio, at 59.3 percent in both months, remains low and reflects limited growth in the labor force.