Is the US at Maximum Employment?

On Friday, the US Department of Labor reported that the United States added 228,000 new jobs in November, marking 86 consecutive months in which the country has added jobs. The US unemployment rate stands at 4.1 percent, the lowest it’s been since it dipped just below 4 percent in 2000. Over the past year, the numbers of “marginally attached” workers (who want to work and have looked for a job within the last year, but not within four weeks of being surveyed) and “discouraged” workers (who have stopped looking for work because they don’t think jobs are available) have both diminished significantly. So has the US reached the point of “maximum sustainable employment” (MSE), one of the mandates given to the Federal Reserve?

The consensus among economists is muddy. Days before the Labor Department released its November jobs data, Chicago Booth’s Initiative on Global Markets reported the results of a poll of its Economic Experts Panel, in which 22 percent of respondents said the US economy is still operating below MSE, 12 percent said it isn’t, and 55 percent were either uncertain or had no opinion.

“Unemployment is down, which is great,” wrote MIT’s David Autor, “but labor force participation still has a lot of headroom to rise.”

The panelists’ disparate opinions may stem in part from the definition, or lack thereof, of MSE itself. The IGM also asked its panelists whether the concept of MSE “is well defined enough to be used beneficially in economic policymaking,” and only 40 percent of the panel said that it was.