Has 'Full Employment' Become Obsolete?

Economists speak out on what the term does—and doesn’t—mean

By Joseph Coombs Mar 7, 2016
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The U.S. unemployment rate of 4.9 percent in January 2016—a level not seen in nearly eight years—has spawned a discussion in the media and among economists on whether we are getting closer to “full employment.”  

Loosely defined, full employment is an economic condition when all eligible people can find work at prevailing wages, and a time when the number of job seekers nearly matches the number of job openings. It does not assume 0 percent unemployment; historically, the jobless rate for this condition typically ranges from 4 to 6 percent.

But these are not typical times for the U.S. labor market, which is still recovering from the Great Recession and marked by technological advancements that continue to eliminate or alter the nature of millions of jobs.

So is the notion of full employment no longer within reach? What follows are the views of several HR professionals, recruiters and economists on this topic.

Bob Corlett, president, Olney, Md.-based recruiting firm Staffing Advisors

“It’s not that full employment is suddenly an obsolete concept; it was never useful to anyone but economists in the first place. The big macro numbers don’t tell you anything, and unemployment rates vary widely by where you live. The job market is rarely in balance. Economists don’t mind this. People do.

“Hiring is hard until enough people get trained in a particular skill. It all depends how fast people migrate from other job sectors into the sector with the shortage. If experts can easily jump from one industry to another, that skill almost never gets in short supply—HR is a classic example of this. HR professionals can usually transition from the for-profit sector into the nonprofit sector and back. And while this might help keep people working, it means that the vast majority of HR professionals are always forced to compete for jobs against large numbers of their peers.”

Chad Moutray, chief economist, Washington, D.C.-based National Association of Manufacturers

“My sense is that the unemployment rate means a lot less today than it did in the past. The real rate is like 9.9 percent. We still have a large amount of slack. That being said, we shouldn’t underestimate the positives here. The unemployment rate is down to half of what it was at its peak during the recession. In general, you have seen the overall market improve.

“My forecast is that we’ll probably get down to 4.6 or 4.7 percent by the end of the year. Normally, that’s when you would start having this conversation about full employment. As you get further down, you’ll see tightening in the labor supply.

“Almost every manufacturer we talk to says they have trouble finding talent. That’s a skills mismatch above anything else. The reality is, full employment is probably in the low 4s, but again, you have that huge asterisk next to it.”

Pamela Harding, SHRM-SCP, principal, Enumclaw, Wash.-based PH Consulting, an HR consultancy

“The traditional definition of full employment just doesn’t fit anymore. There are quite a few factors impacting this. First, the trend towards a freelance talent pool. More and more workers prefer to control their work and not be in traditional employer/employee relationships.

“Second, the nature of work continues to evolve with technological advances. The workforce is no longer constrained to a geographical area. And third, though the Millennial generation makes up a larger proportion of the workforce, there still is [a significant percentage] of the workforce who find it difficult to update their skill sets to meet the needs of today’s work.”

Michael Williams, Atlanta-based economist and consultant

“So … are we at full employment? I think not. Regardless of the technical definition, the large number of underemployed and underutilized workers has a negative impact on the economy. After the recession, many people got laid off, became long-term unemployed and dropped out of the labor force, which decreased the number of unemployed and decreased the unemployment rate.

“[These people] are not spending as much as they would like to spend, so there is not as much demand. That is part of the reason for less investment by private companies and it is part of the reason for the government deficit. Until the underutilized labor decreases to levels similar to those in the 1990s, I do not think the U.S. will grow rapidly, regardless of the unemployment rate. The increase in income inequality exacerbates this aspect.”

Nicole Dessain, founder and chief strategist, Talent Imperative, Evanston, Ill.-based consulting firm

“We are at a tipping point in how we account for the total workforce due to the emergence of what I call ‘talent as a service.’ Companies are increasingly hiring just-in-time workers, and talent is marketing their services to multiple employers at once. This trend has highlighted that the current model of defining and calculating categories of employment needs an overhaul. Much remains to be done at the organizational as well as the legislative levels to keep up with a trend that will only grow.”

Laura Sejen, managing director, human capital and benefits, Willis Towers Watson, New York City-based global consulting group

“I think there are a few contributing factors. First is the way [the government] defines employment to include not just regular full-time work, but also part-time and temporary work. So to the extent someone would prefer to work full time, but instead is working part time or on a temporary basis, they still get counted among the employed.

“Second is how we define the labor force. Labor force participation rates have been down for a while due to discouraged people who have stopped looking for a job, and thus don’t count as unemployed or in the labor force.

“Third is the increasing percentage of the labor force that is contingent. Given the reluctance on the part of many companies post-recession to create and commit to regular full-time jobs, as much as one-third of the U.S. labor force may be working on a contingent basis, and that could also be contributing to the disconnect.”

Tom Darrow, SHRM-SCP, founder and principal, Atlanta-based consultancies Talent Connections, LLC and Career Spa, LLC

“We’re far from full employment. From what I’ve seen, the true unemployment rate is around 10 percent. Our government doesn’t want to look at it this way because it’s a black eye on the economy. Unfortunately, though, the first step in solving a problem is admitting that there is a problem. The economic and social implications are huge.”

Corinne Jones, president and senior HR consultant, New York City-based CJC Human Resource Services

“As far as the term ‘full employment’ goes, it is completely irrelevant and seemingly more popular with politicians. In the technology sector, there is a tremendous shortage of quality candidates with the technical skills—and basic professional skills—necessary to qualify for positions in engineering, project management and sales.

“Those that are out of work at the moment and actively seeking employment should spend their time gaining industry-specific certifications. Our research is showing a striking downward stroke in demand for unskilled labor at the hands of technology. Specifically, robotics are rapidly coming into play in nearly all major retail and hospitality environments, two hot areas for unskilled labor pool jobs. The only way we are getting to a decreased state of unemployment is through professional development.”

Joseph Coombs is a senior analyst for workforce trends at SHRM.

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