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Markets and Economy

Beyond Full Employment

The US unemployment rate is sitting at 3.68 percent, the lowest level many people have ever seen. As employers struggle to fill more than 7 million open jobs, some observers are wondering whether growth will start to slow—but automation and immigration may help boost the workforce’s potential.
Jim Glassman, Head Economist, Commercial Banking
October 10, 2018

Full employment has arrived, and job seekers in today's economy have no shortage of options. But as the labor market continues to create jobs at an above-trend pace, more than 7 million openings remain unfilled. This has led to worries that a shortage of labor could constrain future growth—if businesses can’t find new workers, how will the economy expand?

The pool of available workers is undoubtedly shrinking. The last of the discouraged workforce dropouts are finally returning to the job market, and the number of involuntary part-time workers is steadily declining. Some job openings may never be filled. But the tightening labor market doesn’t necessarily define the limits of the US economy. Automation and immigration can continue to lift the workforce’s productive potential in a time of full employment.

The Market Tightens

The true amount of slack remaining in the labor market has always been difficult to measure, but the pool of available workers appears to be drawing tight. Wage growth has accelerated to 3 percent this year as businesses compete for workers. The headline unemployment rate has dipped below 4 percent, well beneath most estimates of the minimum sustainable level of labor market slack.

Even as more jobs become available and wages rise, the labor force participation rate is unlikely to reach its pre-recession peak. Of the 90 million working-age Americans not in the labor market, most are early retirees who likely won’t be lured back to the workplace while surging equities push household wealth to new heights.

An Automated Solution

Businesses are turning to automation and labor-saving technologies to help offset rising labor costs and bridge staffing gaps. Automation is moving beyond the manufacturing sector as intuitive computer interfaces bring technology to customer service. Most grocery stores are already taking advantage of self-checkout lanes that allow one cashier to oversee dozens of purchases at once, and quick-service restaurants have added ordering kiosks to free up staff for food preparation.

Despite common fears, widespread automation isn’t necessarily a threat to human workers. As the current shift demonstrates, technology is being used to enhance productivity; it doesn’t displace the need for labor. The economy is still creating jobs faster than the underlying population growth. Automation is increasing the workforce’s productive potential, paving the way for further growth.

Expansion Through Immigration

Immigration reform could help meet the demand for labor through an immediate expansion of the workforce. A streamlined visa process could bring in skilled workers who are perfectly matched to the needs of expanding businesses. Immigrants arriving in the prime of their careers could immediately increase the nation’s productive potential.

Green-card issuance has been accelerating in recent years as the economy improves, but the number of new permanent residents provides only a snapshot of the total immigration pipeline. Many immigrants spend years in the workforce without gaining permanent residency. Removing the obstacles to obtaining an initial visa could accelerate immigration flows and help the workforce expand to meet the growing demand for labor.

The Importance of Potential

After nearly a decade of chronically high unemployment, the abundance of job openings is a welcome problem. But full employment and rising wages alone can’t solve the long-term problems facing the economy. Faster growth will be necessary to address the structural budget deficit that threatens to crowd out capital investment in the coming decades.

Accelerating growth could significantly improve the nation’s long-term outlook. If automation enhances worker productivity and immigration further swells the workforce, a more rapidly expanding economy will be better able to support the aging population. The trends bolstering the workforce’s productive potential today will do more than meet the immediate demand for labor—they could help put the nation on firmer footing for years to come.

View our economic commentary disclaimer.

 

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