Publication Date

4-15-2014

Abstract

[Excerpt] The unemployment rate declined markedly in 2013, to 6.7% in December from 7.9% in January, seeming to signal that the labor market is approaching full employment. Other economic and labor market indicators paint a more pessimistic picture, however. For example, the decline in the unemployment rate was caused in part by workers dropping out of the labor force. The labor force participation rate has fallen to under 63% at the end of 2013 from 66% before the recession. Understanding this divergence is crucial for an accurate assessment of the current state of the economic recovery and of how close the economy is to full employment.

This report analyzes recent trends in labor market indicators during the current economic recovery, with a particular focus on the contrast between the unemployment rate and other labor market indicators. It reviews studies that have sought to determine how much of the decline in the labor force participation rate is caused by the recession and how much is caused by structural factors, such as the aging of the labor force. It then considers whether the economy might reach full employment at a higher rate of unemployment compared to recent expansions. It concludes by analyzing the implications of these developments for macroeconomic stabilization policy, as policy makers grapple with the transition from the expansionary fiscal and monetary policy put in place during the “Great Recession.” If the labor market has experienced structural changes, it would also have implications for labor market and other microeconomic policies (e.g., spending or tax provisions that increase the incentives to hire, seek work, delay retirement, or train), which are beyond the scope of this report.

Comments

Suggested Citation
Labonte, M. (2014). Returning to full employment: What do the indicators tell us?. Washington, DC: Congressional Research Service.

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