The unemployment rate has fallen steadily over the last several years, and many have said that the current rate of 4.4 percent means we are back to (or have even dropped below) full employment—meaning that pushing unemployment any lower would cause inflation to accelerate above the Federal Reserve’s preferred 2 percent target. That is why many observers have applauded the Fed’s recent decisions to raise rates, even though the rate hikes occurred before most workers have seen the economic recovery translate into consistently strong nominal wage growth.

The fact is that the headline unemployment rate continues to understate slack in the labor market. Today’s 4.4 percent unemployment rate is associated with a much lower prime-age employment-to-population ratio (EPOP)—the share of the working age population who is actually working—than in the recent past. While there may be reasons other than labor market slack for today’s lagging labor force participation, by looking just at the prime-age EPOP, we can at least eliminate any distortions caused by the wave of retiring baby boomers. The graph below shows that the prime-age EPOP averaged 81.2 percent in the five months the unemployment rate hit 4.4 percent in 1998 and 1999 (including one month in 2001), and 80.5 percent in the four months unemployment hit 4.4 percent in 2006 and 2007. On average, those nine months saw a 2.1 percentage point higher prime-age EPOP (80.7 percent) than the 78.6 percent we see today.

An unemployment rate of 4.4 percent no longer conveys the same information about the tightness of the labor market as it did in the previous business cycles. The last business cycle, like the current one, never saw demand growth strong enough to get us to genuine full employment, but the extent of that weakness was mostly hidden if you just looked at headline unemployment.

At 78.6 percent, the current prime-age EPOP is only where it was at the bottom of the last full business cycle. Yes, we’ve seen great improvements since the depths of the Great Recession and immediate aftermath, but we are not nearing the end of economic improvements possible. We still have a chance of reaching genuine full employment in the current recovery, as long as the Fed keeps its foot off the brakes.

Once the labor market tightens sufficiently, we should see that translate into consistently stronger nominal wage growth. At 2.5 percent over the year, wage growth remains below levels consistent with the Fed’s 2 percent inflation target and long term trend productivity growth. And, for the roughly bottom 80 percent of workers represented by the production/nonsupervisory wage series, in light blue, they may be seeing a bit of deceleration in recent months.

The slack is there in depressed labor force participation and below target wage growth. You just have to look in the right places to find it. This makes the risks to policymakers of aggressively pursuing tighter labor markets smaller than the risks of prematurely slowing the recovery. If they instead are too quick on the trigger and slow the economy down prematurely, the benefits of full employment will simply not reach all corners of the labor market, including those young high school and college grads who will be dipping their toes in the labor market in the months to come.