The sustained decline in the official jobless rate – now near the Fed’s estimate of “full employment” – is a misleading indicator of labor market health. Indeed, the stagnation in nominal wage growth is consistent with the weakness in the employment/population (E/P) ratio. After dropping to three-decade lows in the wake of the Great Recession, the E/P ratio has barely improved since the fall of 2013, reversing only a quarter of its decline from its pre-recession highs. Furthermore – as a breakdown of the E/P ratio by education level shows – even this modest improvement is illusory.



Since 2011, when the E/P ratio for those with less than a high school diploma bottomed, that metric has regained almost two-thirds of its recessionary losses (orange line in chart). But the E/P ratio for high school or college graduates – i.e., eight out of nine American adults – has not recovered any of its recessionary losses, and has barely budged in four years (purple line). This data underscores how the jobs recovery has been spearheaded by cheap labor, with job gains going disproportionately to the least educated — and lowest-paid — workers, many of whom have to work multiple jobs to make ends meets. This is scarcely supportive of Janet Yellen’s description of a “much healthier” consumer in justifying the Fed rate hike.