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This chart suggests the unemployment rate isn’t as low as it seems

Look closer and there’s plenty of slack.

The unemployment rate has fallen to exactly where it was back in March 2007 before the Great Recession struck, but wage growth has continued to be sluggish as if the labor market remains weak.

Mark Doms of Nomura Securities has an interesting chart that explains some of this by breaking the unemployment rate down in demographically specific ways. Today’s population is both older and better educated than the population of a decade ago, and older and better-educated people are less likely to be unemployed. He shows that if you compare apples to apples, the unemployment rates for most kinds of people are actually somewhat higher than they were back then.

Mark Dow

Educated workers, according to this data, are more plentiful at almost every age level.

That’s been offset by a decrease in unemployment among the least educated workers, especially among younger ones. However, we know separately that there’s been a large decline in the labor force participation rate of less educated workers. So despite the fall in the unemployment rate for this cohort, the people are still out there and potentially capable of working.

This all adds up to an argument for the Federal Reserve to tread very cautiously when it comes to raising interest rates. The wage data does not show an inflationary spiral underway, and the detailed demographic look at the unemployment data suggests there isn’t one around the corner.

One scenario is that the less educated labor force dropouts aren’t coming back to the workforce. In this case, running a tight labor market should disproportionately lead to wage hikes at the low end and reduce wage inequality. Another scenario is that the dropouts are merely discovered, and running a tight labor market will tempt them back into the workforce.

Either way, skilled workers of almost all age cohorts are still experiencing elevated levels of unemployment and would benefit from a continued growth orientation in monetary policy.