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Assessing Maximum Employment

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Abstract

We suggest a core set of indicators for evaluating the position of the labor market relative to maximum employment. The unemployment rate remains the key indicator of the cyclical position of the labor market, as it is time-tested, is highly correlated with other indicators, and has practical measurement advantages. But other indicators can provide complementary evidence to get a fuller picture of the labor market. A joint analysis of job vacancies and unemployment in a Beveridge curve diagram is helpful when structural shocks affect the labor market and when the labor market is very tight, while the employment-to population ratio is useful late in expansions, when increases in employment tend to arise from higher labor force participation. Additional indicators—including wage growth and worker flows—can complement the core indicators we discuss. We draw on lessons from the Global Financial Crisis and the COVID-19 pandemic to evaluate the effectiveness of various indicators.

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  • Christopher L. Foote & Shigeru Fujita & Amanda M. Michaud & Joshua Montes, 2025. "Assessing Maximum Employment," Working Papers 25-26, Federal Reserve Bank of Philadelphia.
    • Handle: RePEc:fip:fedpwp:101756
    DOI: 10.21799/frbp.wp.2025.26
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    1. Regis Barnichon & Andrew Figura, 2015. "Labor Market Heterogeneity and the Aggregate Matching Function," American Economic Journal: Macroeconomics, American Economic Association, vol. 7(4), pages 222-249, October.
    2. Gadi Barlevy & R. Jason Faberman & Bart Hobijn & Ayşegül Şahin, 2024. "The Shifting Reasons for Beveridge Curve Shifts," Journal of Economic Perspectives, American Economic Association, vol. 38(2), pages 83-106, Spring.
    3. Abraham, Katharine G & Katz, Lawrence F, 1986. "Cyclical Unemployment: Sectoral Shifts or Aggregate Disturbances?," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 507-522, June.
    4. Pierpaolo Benigno & Gauti B. Eggertsson, 2024. "Revisiting the Phillips and Beveridge Curves: Insights from the 2020s Inflation Surge," NBER Working Papers 33095, National Bureau of Economic Research, Inc.
    5. Katharine G. Abraham & Melissa S. Kearney, 2020. "Explaining the Decline in the US Employment-to-Population Ratio: A Review of the Evidence," Journal of Economic Literature, American Economic Association, vol. 58(3), pages 585-643, September.
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    Keywords

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    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand

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