How Low Can the Unemployment Rate Go?

Tomado de http://www.wsj.com/articles/how-low-can-the-unemployment-rate-go-1483645308

Already at a nine-year low, the 4.6% unemployment rate might head lower still

A November jobs fair in New York. The final Labor Department unemployment reading of 2016 is set to come out Friday. PHOTO: MARK KAUZLARICH/BLOOMBERG NEWS

By 

STEVEN RUSSOLILLO

Jan. 5, 2017 2:41 p.m. ET

48 COMMENTS

One key question for the U.S. labor market this year: How low can the unemployment rate actually go?

The Labor Department defines unemployment as pertaining to anyone without a job who is actively looking for work. Not without its flaws, the unemployment rate essentially boils down the job market into a single number. At 4.6%, it is already at a nine-year low as the final monthly report of 2016 is set to come out Friday.

But the lower the unemployment rate gets, the further it goes into unfamiliar territory. The Labor Department’s monthly statistics, which date back to 1948, show that the unemployment rate has been at 4.6% or lower just one-quarter of the time. And the majority of those readings came in the 1940s, ‘50s and ‘60s.

If current labor trends persist, it is likely headed lower. The economy added 180,000 jobs a month, on average, in 2016, down from 229,000 in the prior year. Assuming the economy adds around 200,000 jobs a month in 2017 and the labor-force participation rate stays relatively constant, the unemployment rate would fall to 3.9% by the end of the year, according to a model maintained by the Federal Reserve Bank of Atlanta.

There is precedent for such a development: In November 1997, the unemployment rate fell to 4.6%, which at the time was the lowest since 1973. It maintained its downward trajectory for the next several years, hitting a low of 3.8% in April 2000.

Of course, the headline unemployment rate alone doesn’t tell the full story. The economy is in a much different state now than it was in the late 1990s. Wage growth has only recently started to improve. Overall participation in the labor force is still historically low. And full-time jobs aren’t as plentiful as they used to be. New research shows a majority of jobs created from 2005 through 2015 were considered “alternative work”—either temporary or contract employment, according to economists Lawrence Katz of Harvard University and Alan Krueger at Princeton University.

That helps explain why a broader measure of underemployment, which the government classifies as the “U-6,” is still elevated. It has been trending lower and fell to 9.3% in November, although that is a far cry from its precrisis low of 7.9%. And the Federal Reserve only has raised interest rates twice in this economic expansion, with Chairwoman Janet Yellen frequently mentioning the U-6 as justification for keeping interest rates so low.

The low unemployment rate didn’t mollify angry voters last year. Even if it falls further, the quality of the jobs created and the wages they pay may be more important figures.