Fully employed?

September 8th, 2015

It is Labor Day weekend and a good time to reflect on the labor market. The job market is changing, and I think some of the changes are dramatic. Economists have long focused on the monthly employment data. This information is released on the first Friday of the month, and has always been important to the Fed as one of its objectives is to promote “maximum employment” – and this is our focus today.

Economists in the public and private sector debate regularly the meaning and importance of maximum, or “full”, employment. Part of the debate centers around the belief that once full employment is reached, wages will start to rise as employers have to attract workers who are already employed. A rise in wages is potentially a major contributor to inflation; which brings us to another Fed objective – stable prices.

During the last economic downturn reports showed that many frustrated workers had given up on the job market. This reinforced the notion that the labor force was underemployed. One example of underemployment is a person who has lost a high paying job and is now working for less. Another example is a former full-time worker who now can only find part-time work. Baby boomers approaching retirement have been especially vulnerable to these changes. A suddenly redundant, 58 year-old corporate executive might have a tough time finding a similar job so near to retirement age.

There is another aspect of the evolving employment market that is becoming more important: changes within part-time work. One often overlooked development in this segment is the growing number of cases where being a “part-timer”, or “job-sharer”, is the choice of the worker.  In fact, estimates suggest that 6 million Americans are choosing a part-time work life as their standard. Recent research and articles have shown some surprising revelations about this group. Many younger people see working part-time as a viable long term solution because it allows them to pursue other passions. Moreover the part-time workforce is often well educated and motivated. Many companies are struggling to adjust to these trends as they seek to recruit from a labor market which includes many workers who are not constrained by the old definition of work. The continuation of these trends could result in a fundamental demographic game-changer for the economy.

Both economists and politicians seem to be slow to take account of the developing views of what it means to be fully employed. Politicians love to joust about the underemployed, with the party not in power invariably asserting that the actual unemployment rate is much higher than the figure stated by the Labor Department. But are these politically-driven sound bites accurate? I suspect the job market is much better, and much healthier, than the picture painted by the old traditional economic employment numbers that come out on the first of every month. Quite simply, the job world is a different beast than it was twenty years ago

Carl Gambrell