US: How much labor slack is left? – Deutsche Bank

In view of analysts at Deutsche Bank, while a 4.3% unemployment rate of US suggests the labor market is at full employment or through it, other measures of labor slack paint a less rosy picture.

Key Quotes

“For example, the participation rate remains more than three percentage points below its pre-recession level. While much of this decline can be explained by the ageing of the population, there is modest scope for a cyclical improvement in participation. A more meaningful gain in participation could occur if a strong upturn in economic activity were to reverse some of the structural changes that have weighed on participation, such as rising education levels among young workers and an increase in nonparticipation due to disability.”

“In the best-case scenario, we estimate roughly four million workers could be added to the labor force, with participation rising slightly to around 63.3% in 2018 from 62.7% at present. Under such a scenario, the downtrend in the unemployment rate would temporarily slow, perhaps mitigating some upward pressure on wages. However, this would be a short-lived phenomenon with the unemployment rate eventually poised to break below 4%.”