The Federal Reserve is mandated by Congress to promote both “stable prices” and “maximum employment.” The Fed defines stable prices as a 2% inflation rate, but what exactly does full employment look like? And why do disparities persist in labor market participation by race, gender, education, and geography, even when unemployment rates are low?

Those were among the questions economists and other experts explored at the Federal Reserve Bank of Boston’s 67th Economic Conference, “Rethinking Full Employment,” which was held at the Bank on Friday and Saturday.

Participants discussed barriers that prevent some people from fully participating in the labor market, and how some workers are left out of traditional employment measures. Researchers also examined how approaches to measuring maximum employment are evolving, as well as the relationship between monetary policy and full employment.

Boston Fed President and CEO Susan M. Collins said monetary policy often can’t resolve longtime barriers to employment, such as a lack of affordable child care. But it’s critical for the Federal Reserve to understand how these barriers and disparities are changing, she said.

“(At the Boston Fed), we believe better understanding these gaps can lead to expanded opportunities for more people – and to those opportunities being more equitably available,” Collins said in her opening remarks. “This helps bring more people into the workforce and strengthens economic growth and competitiveness.”

Papers and presentations shared during the conference

Researchers presented four papers during the conference on topics ranging from shifts in women’s labor force participation to the importance of “gig” work. Three panel sessions explored the labor market barriers faced by some racial groups and debated the impact of the full-employment mandate on recent monetary policy. The titles and video recordings of each paper and panel session are listed below and available on bostonfed.org:

• “The Outlook for Women’s Employment and Labor Force Participation,” Stefania Albanesi (University of Miami)
• “Can Workforce Development Help Us Reach Full Employment?” Harry J. Holzer (Georgetown University)
• “Informal Work and Official Employment Statistics: What’s Missing?” Anat Bracha (Hebrew University) and Mary A. Burke (Federal Reserve Bank of Boston)
• “Employment Challenges Faced by People with Criminal Histories,” Steven Raphael (University of California, Berkeley)
• “Race-Related Gaps in Employment Rates,” panel session with Francisca Antman (University of Colorado), Kevin Lang (Boston University), and William M. Rodgers III (Federal Reserve Bank of St. Louis)
• “Probing for Maximum Employment,” panel session with J. Bradford DeLong (University of California Berkeley), Kristin J. Forbes (MIT-Sloan), and Donald Kohn (Brookings Institution)
• “Measuring Maximum Employment in Real Time,” panel session with Jeffrey Kling (Congressional Budget Office), Pascal Michaillat (University of California Santa Cruz), and Stefano Scarpetta (Organization for Economic Co-operation and Development)

Why did women’s workforce participation slow down?

In the session on her paper, “The Outlook for Women’s Employment and Labor Force Participation,” University of Miami economics professor Stefania Albanesi examined why women’s labor force participation in the U.S. stagnated after growing rapidly in the 1990s.

Albanesi presented two key factors: changes in workers’ earnings structure, and a lack of family-friendly policies.

Albanesi said “performance pay,” such as performance-related bonuses, became more popular in the 1990s. But the traditionally male professional roles women entered in the 1980s and 1990s frequently penalized employees for not working long hours, she said. At the same time, women’s child care responsibilities often limited them from spending extra time at work, which led to lower wages.

Other countries introduced similar performance pay incentives in the 1990s, Albanesi said. But the U.S. lagged behind in implementing policies that support families – including child care, parental leave, and workplace flexibility, and that played a key role in slowing down women’s labor force participation.

Albanesi added it’s worth exploring further how the expansion of “work from home” policies following COVID-19 impacted the recovery in women’s labor participation, after an initial drop at the start of the pandemic. 

Panel: What’s driving race-related gaps in employment rates?

During the conference’s first panel, researchers looked at sources of racial disparities in employment and how they’re influenced by policy changes and economic cycles.

Boston University economics professor Kevin Lang focused on the employment gap between Black and white workers over time and how those workers are differently impacted by recessions. Francisca Antman, a professor at the University of Colorado Boulder, said the U.S. Supreme Court’s decision to end affirmative action in higher education may worsen long-term disparities in earnings between Black, Hispanic, and white workers.

William M. Rodgers III, vice president and director of the Institute for Economic Equity at the Federal Reserve Bank of St. Louis, presented an analysis of job vacancies and unemployment rates for different demographic groups. He showed that during tight labor markets, the high number of job vacancies posted by employers causes unemployment among Black workers to fall more than unemployment among white workers. Yet, he said a significant gap between Black and white unemployment rates exists even in tight labor markets, so policies should try to reduce long-term, structural impediments to Black employment.

Keynote: Why was job recovery following COVID-19 different from previous recessions?

The conference’s keynote address was delivered by Cecilia Elena Rouse, the Katzman-Ernst Professor in Economics and Education at Princeton University, and a former chair of U.S. President Joe Biden’s Council of Economic Advisers.

Rouse discussed what she called the “remarkably equitable” pandemic recovery: Despite the COVID-19 pandemic’s massive impact on employment, U.S. jobs recovered faster following the pandemic than after other recent recessions, she said.

Rouse said the quick employment recoveries for many demographic groups and their associated wage gains may be related to federal pandemic-response policies, including those that increased unemployment benefits and child care support. For Black workers in particular, wage gains were related to shifts towards higher-paying occupations and industries, Rouse said.

“I think it would be really interesting to better understand the role of this expanded safety net on the labor market experiences of workers,” she said.

How should policymakers view the gig economy?

Boston Fed senior economist Mary Burke and Anat Bracha, an associate professor at the Hebrew University Business School, gave a joint presentation on their paper “Informal Work and Official Employment Statistics: What’s Missing?”

The researchers created the “Survey of Informal Work Participation” and analyzed data collected from 2015 – 2022 to estimate the amount of “gig work” missing from official employment statistics. According to the authors, “gig work” or “informal work” refers to the temporary or occasional side jobs workers use to supplement their main source of income. Bracha and Burke found that the employment rate would be about 3.5 percentage points higher if missing gig workers were included in official statistics.

The researchers also noted that many people who engage in informal work don’t view it as a “job.” That can lead to misclassifications in other data-collection efforts, such as the federal Current Population Survey, which measures unemployment and labor force participation each month.

Learn more about the conference participants, read the papers, and watch the presentations on bostonfed.org.