How close is the economy to full employment, or are we there already?
Demographic change coupled with the large number of people who left the labor force during the Great Recession make this a very difficult question to answer. But it's clear from the ongoing presidential election campaigns that Americans have jobs on their mind and that many are feeling increasingly left behind.
Here are some other tough labor market questions: As the population ages, how many people will choose to retire at, say, age 62 rather than waiting until they can collect full Social Security benefits? How many will choose to go on disability rather than continuing to work, and how will future economic conditions affect these choices?
How will the decline in the population growth rate affect the labor force participation rates of younger people? How many will go to college, and how many will start working after high school? And, again, how might economic conditions in the next few years affect that choice?
One way to partly avoid these difficult questions is to examine the employment-to-population ratio for people aged 25-54 (chart below).
This isn't a perfect measure. Questions remain about how many workers in this age group who left the labor force during the recession will eventually return. But it does strip out many of the concerns about demographic change (though aging of the median worker within this age range can still affect the how much the ratio will recover in the future).
And it tells us three things. First, employment has recovered considerably relative to the population since the trough of the recession, from approximately 75 percent to 77.5 percent. That's more than the labor force-to-population ratio for the full working age range would indicate. Second, the ratio is still below the relatively flat trend of around 80 percent prior to the recession. Third, and important, the ratio hasn't yet leveled off, indicating that future increases are possible.
The extent to which employment can recover further depends in large part on the availability of jobs and the wage rate, both of which will be affected by the course of monetary and fiscal policy. If the Fed raises interest rates too fast and too soon, wages and employment will be suppressed, and valuable members of the workforce will never return.
If Congress continues to serve the interests of the donor class rather than the working class, fails to provide the economy with the infrastructure it needs and the jobs that come with it, and forces further reductions in social services through tax cuts and demagoguery over the national debt, the discouragement so many people feel will only get worse.
We would all be better off if the large number of people who left the labor force during the recession return to productive employment rather than relying on social services, family, crime or other means to survive. We will be healthier as a nation if the gains from international trade and technological change are broadly shared rather than concentrated at the top of the income distribution.
Our future growth rate will be higher, and the opportunity to find decent jobs will be enhanced, if the U.S. has the infrastructure, educational resources, health care and social protections it needs to ensure Americans are as productive and innovative as we can be.
Events in this year's presidential campaign have made it clear that people are unhappy with the present state of the economy. They believe policy has been tilted too much toward the interests of the financial industry, big business and the wealthy -- and that they've been forgotten.
But these problems won't be solved by closing the door to international trade and immigration, by enacting huge tax cuts for the wealthy or by embracing politics that divide us as a nation.
Policymakers at the Fed and in Congress must do all that they can to create jobs and opportunity for those who feel overlooked and forgotten. People are speaking clearly this election cycle: They want jobs, they want opportunity, they want wages to go up and they want inequality in to go down.
Unfortunately, the anger and discouragement so many people feel is only being exploited by politicians seeking the presidential nomination. Will the voices of people struggling to make ends meet every month be truly heard once the election is over? And will those needs translate into policies that serve the vast majority of Americans rather than those at the top? That remains to be seen.