If the US economy were operating at its productive potential, the share of 25 to 54-year-olds who are employed ought to be what it was at the start of 2000. Back then there were few visible pressures leading to rising inflation in the economy.
Does anybody disagree with that?
Read the whole thing. Pointer from Mark Thoma.
When Bill James was writing his annual Baseball Abstract, you could say that his main goal was to focus attention away from meaningless baseball statistics and toward better metrics. In that spirit, I think that looking at prime-age employment-population ratios, broken down by gender, is a valuable approach. That is what Brad has done with this chart. However, I want to offer a different way of looking at it (and this way could be helpful or it could e misleading).
As I read his chart, between 2000 and 2006, the employment-population rates for males and females each dropped by about 2 percentage points. Most recently, they were 5 percentage points and 4.5 percentage points below 2000 levels. So, one way to look at the chart is that if you drew a trend line from 2000 to 2006, and then extended that trend line to 2014, the line would hit pretty close to the current numbers.
I do not mean to dispute in any way DeLong’s larger point, which is that the Fed is nuts to be more worried about inflation than labor market slack at the moment. But as you know, I don’t much care what the Fed worries about or does not worry about. I am inclined to see structural forces at work in the data, and the “trend line trick” is sufficient to fit the data to my priors.