If you find your Thanksgiving table descending into a fight about whether President Donald Trump’s Ukraine scandal rises to an impeachable offense, put down the mashed potatoes, tap your wine glass, gather your family’s attention, and tell them that this holiday is reserved for gratitude. If they doubt that American public life offers anything to be thankful for, ask them to consider this: The American people are finally back to work.
This year, the rate of employment for people between the ages of 25 and 54 — those who are mostly too old to be in school and too young to be retired — has finally recovered from the Great Recession.
At the peak in employment in April 2000, nearly 82 people out of every 100 in this age range had jobs. In January 2008, one month after the recession began, 80% of prime-age adults were employed. The rate cratered as employers shed workers, bottoming out at 74.8% in December 2009, six months after the recession officially ended. Prime-age employment showed no signs of recovery for several years thereafter, and only began a sustained upward climb in 2014.
Three months ago, in August, the rate finally hit 80% again. In September, it climbed to 80.1%, officially exceeding the post-crisis peak for the first time, over a decade after the downturn began. Last month, the climb continued, to 80.3%.
In the years since the recession ended, the stagnating prime-age employment rate provoked gloomy predictions that there would never be a full recovery. Many commentators and economists argued that structural factors were holding back employment — that people who were out of work simply didn’t have the skills that businesses needed. These were reasonable concerns in theory, but the evidence for them was always scant.
This period also witnessed theories that were less reasonable, including some by professional economists — for example, that young men weren’t working because video games had become so much more entertaining. (Are we to conclude that the recovery of prime-age employment was driven by a reduction in the quality of video games?)
The argument that employment wouldn’t fully recover also related to cyclical factors. The concern was that falling unemployment and a tightening labor market would spark consumer price inflation before the rate of employment would reach its January 2008 level.
Here, the skeptics were on stronger ground. It was reasonable (though incorrect) to conclude — based on historical experience, among other things — that the labor market was nearing full employment when the unemployment rate fell below 6% in 2014. It was even more reasonable (though still ultimately incorrect) to argue this in the spring of 2017, when the unemployment rate fell below 4.5%.
The unemployment rate is now 3.6%, lower than it has been in five decades. By letting the labor market aggressively tighten, the Federal Reserve has allowed the prime-age employment rate to recover fully. (Though it hasn’t fully recovered for male workers. The rate for men still has about 1 percentage point to go to reach its pre-crisis level.)
The lesson here for the Fed is to continue allowing the hot economy — the best jobs program there is — to increase employment. The Fed should always be concerned about inflation, of course. But if anything, inflation has slightly decelerated over the last year or two, and expectations about future inflation — a key driver of actual inflation — are flat. The experiment in very-low unemployment should be allowed to continue until the Fed can see the whites of inflation’s eyes. Another reason to be thankful: the Fed seems to be planning on exactly this. Rate increases in 2020 are (currently) unlikely.