As Good as It Gets By: Gabriel PotterMBA, AIFA® 2018.12.12

Many of us have watched the US unemployment rate move steadily down over the past decade.  By the last measure, the unemployment rate was an extremely healthy 3.7%.  When unemployment gets this low, we do have to free ourselves from a completely understandable assumption – the notion that unemployment can ever reach zero.  Thinking simplistically, imagine a job fair where there are, cumulatively, 90 jobs available and 100 prospective employees.  You might guess that the employment level for this artificial and simplified example should be 90%.  This simplistic logic is essentially correct.  If you increase the number of jobs available, more people work and unemployment gets lower. 

However, if there are 100 jobs available and 100 prospective employees, you can’t perfectly apply the same logic and believe that everyone walks away with a job? 

In the real-world, there are persistent mismatches between training, education, experience, and required skill-sets between employers and employees.  Furthermore, there are natural levels of fitness of each potential employee for various working environments, such that 100% employment just isn’t feasible.

As a matter of fact, we’ve already exceeded the range of our hypothetical example.  There are far more job openings than people who might fill them.  Specifically, the Department of Labor reports 1 million more open jobs (7.1 million) in October than there are unemployed Americans (6.1 million).  Further increasing the number of jobs available and greater leniency on the part of employers can lower the unemployment trade another percentage point or so, but getting the rate under 3% gets exponentially more difficult.  In terms of employment, the US situation is about as good as it gets.

Gabriel Potter

Gabriel is a Senior Investment Research Associate at Westminster Consulting, where he is responsible for designing strategic asset allocations and conducts proprietary market research.

An avid writer, Gabriel manages the firm’s blog and has been published in the Journal of Compensation and Benefits,...

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