New claims for unemployment insurance this week came in at the lowest level in over 40 years. How much slack can there be left in the labor market?

Initial claims for unemployment insurance, weekly, 1967-01-07 to 2015-07-18. Source: FRED.

The most common measure of unemployment (known as U3) counts the number of people who are not currently working and are actively looking for a job. You're put in that category by the BLS if you report taking active measures over the last month to find work. In June U3 amounted to 5.3% of the labor force, where the labor force is defined as the sum of U3 plus people who are currently employed. That's well below the average rate of 6.5% seen over the last 40 years.

U3 unemployment rate, monthly 1948:M1 to 2015:M6. Source: FRED.

But if you simply count the number of people who are working as a percent of the population 16 years and over, you come up with only 59%. That's up a little from the lows reached during the Great Recession, but significantly below what it had been over the last several decades.

Source: FRED.

The difference between the last two graphs is explained by people who are not working but also are not counted as unemployed by the BLS. Most of these people don't want a job because they are retired, disabled, in school, or other reasons. But there are a number of people who aren't working, say they want a job, are available for work, and have taken measures within the past year to try to find work. But because they did not do anything active within the last month, they aren't counted as “unemployed” or “in the labor force”. Instead they are designated by the BLS as “marginally attached to the labor force”. When these individuals are added to those counted as unemployed by the conventional designation, we get a measure of unemployment known as U5. The “marginally attached” are sometimes further broken down into those who say they didn't search within the last month because they were discouraged about finding a job, and those who give some other reason.