Where’s My Raise? The Mystery of ‘Full Employment’

With every new round of job and wage figures, economists look for signs that the economy has reached full employment. That’s often described as the point where the only people who are unemployed are those temporarily in between jobs, and beyond which unemployment is so low that it sparks inflation. But unemployment has fallen further and faster in this expansion than many forecasters anticipated, without any sign of price pressures. That’s forced a major rethink in economics.

It’s supposed to spur inflation: Low unemployment sparks employer competition for workers, wages are bid up and companies boost prices to recoup the increased costs, raising the risk of a so-called wage-price spiral. The idea of full employment was popularized by economists such as John Maynard Keynes and William Beveridge in the 1930s and 1940s, first amid the widespread unemployment associated with the Great Depression and then the very tight labor markets that came along with World War II.