I’ve written a lot about wages in recent months. In March, I detailed trends in wages through 2017 in a report, with specific emphasis on growing inequality both across the wage distribution and between black and white workers. My “What to Watch on Jobs Day” blog post last month, as well as my statement on jobs day, tried to put wage growth in perspective by comparing multiple measures of wage growth and showing how many of them fell short of levels that would be needed to confidently declare the economy at full employment. On Friday’s Jobs Day, I will look at wage growth once again, as well as other measures of labor market slack which indicate that the economy has yet to unambiguously reach full employment.

Wage growth is a really important measure of labor market strength, and while slow wage growth is not just an indication that the economy remains below full employment, by definition slow wage growth means there continues to be some slack in the labor market. Slow wage growth tells us that employers continue to hold the cards, and don’t have to offer higher wages to attract workers. In other words, workers have very little leverage to bid up their wages. Slow wage growth is evidence that employers and workers both know there are still workers waiting in the wings ready to take a job, even if they aren’t actively looking for one. But, you say, the unemployment rate is 4.1 percent. Where are these workers waiting in the wings? The focus of this blog post and what I’ll be looking at on Friday (along with wages) are the other measures that similarly indicate there remains a non-trivial amount of slack in the labor market. I’ll argue that we can actually see this “waiting in the wings” in the data in other measurable ways, aside from weak wage growth.

Last week, my colleague Josh Bivens highlighted one underappreciated measure of labor market flows:  the share of the newly employed that come from out of the labor force. One might be tempted to believe that the labor force represents a rather static and cleanly-defined group of people: those who have a job or those who don’t but want one and are actively looking for one. If that were the case, then the total labor force wouldn’t fluctuate so much and only the unemployment rate would move up and down at different points in the business cycle. But, the labor force itself ebbs and flows, even relative to the working-age population.

In February, the prime-age labor force participation rate hit a recovery high of 82.2 percent. I’m focusing here on the prime-age population, those 25-54 years old, to remove any structural changes in the labor force due to, for instance, retiring baby boomers. The labor force participation rate for prime-age workers bottomed out in the aftermath of the Great Recession at 80.6 percent, and remains significantly below its 2007 peak of 83.4 percent or its series high of 84.6 percent in 1999. The weak recovery and expansion from 2000-2007 found participation in the labor force lower when this business cycle ended than when it began, and the rate still has a ways to go to recover from the Great Recession, let alone get back to the level it reached in 1999. So, as the economy recovers, not only does the unemployment rate fall, but the participation rate increases.

One way to examine this (and here’s where Josh’s snapshot from last week comes in) is to examine labor market flows from one month to the next. Because the household survey tracks people for multiple months, we can know what workers this month were doing last month. If they weren’t working in the previous month, they are either looking for work (counted as the unemployed) or not (counted as out of the labor force). The figure below tells a pretty compelling story. A large and growing share of newly employed workers were out of the labor force in the previous month.

In the two years when the unemployment rate averaged 4.1 percent (1999 and 2000), the flow rate from out of the labor force into employment was only 66 percent. That is, 66 of the newly employed came from out of the labor force. In February 2018, that same flow rate was much higher at 72 percent. This suggests that today’s unemployment rate may be understating overall labor market slack. On Friday, I will look at this measurement and other metrics of labor market strength to make a complete assessment of today’s economy. Each measure, including the unemployment rate, provide part of the picture, but only the whole story can be told using a variety of measures, including ones that look at other dimensions of the labor force, including differences for various demographic groups such as by race and education.

While I’m borrowing Josh’s great graphics, I also want to reprint this really useful display of multiple measures of macroeconomic performance from Josh’s report last week where he makes recommendations for creating jobs and economic security. The figure below shows just how far we are from really testing the extend of full employment in the economy today. Price inflation remains below target levels, wage growth remains weak, and the prime-age employment to population ratio still has far to run to return to levels seen in a stronger economy. These measures all tell the same story: the U.S. economy is still below full employment.