Full Employment: A Broad-Based, Inclusive Goal

By Susan M. Collins

November 17, 2023

Boston, MA

67th Economic Conference

Federal Reserve Bank of Boston

Full-Text Speech (pdf)

Takeaways from Boston Fed President Susan M. Collins’ November 17, 2023 Remarks

Collins emphasized that the two aspects of the Fed’s dual mandate are complementary.

While there often is a tradeoff between inflation and employment in the short run, history has shown that price stability is essential for a well-functioning economy – it is an important precondition for maximum employment that is sustainable over time. So, both aspects of the dual mandate are interrelated and complementary.
A challenge for the Fed, explored at this conference, is how to operationalize a broad concept of full employment when setting monetary policy.

Full employment has often been defined by referencing an unemployment rate. But no one statistic can adequately characterize the labor market, since aggregate numbers do not show the wide range of experiences across people, sectors, and places.
Collins emphasized the connection between the full employment goal and the Fed’s role in fostering a vibrant economy that works for everyone.

For some people, communities, and places, there are substantial and persistent gaps in economic outcomes – including but not limited to employment. This underutilization of the workforce adversely affects national productivity and prosperity.
A better understanding of the behavior of labor force participation is important if the Fed is to meet both its full-employment and price-stability goals, said Collins.

The aggregate unemployment rate becomes an inadequate indicator of full employment when the labor force participation rate is changing. If participation increases in a tight labor market, labor supply expands, and higher levels of economic activity may not generate additional price pressures requiring tighter monetary policy. And the higher levels of activity and participation can benefit those drawn into the labor market.
It is essential to examine factors that could limit people from participating in the economy, and to support research and collaborations that promote economic progress.

The Fed’s mandate and the concern for a vibrant, inclusive economy bring our focus to participation in the workforce, and the challenges that can prevent people from doing so (for example child care, housing, and infrastructure). Often these impediments are long-run, structural factors that cannot be resolved with monetary policy. However, to assess the productive capacity of the economy, the Fed needs to know how such barriers to employment are evolving. And a better understanding can lead to expanded opportunities for more people.