The labor markets are closer to full employment than data suggest, Federal Reserve Bank of Minneapolis president Narayana Kocherlakota told the Economic Club of Minnesota Thursday.

He defined “maximum employment” as a level that can be sustained long term without causing inflation.

Given “inflation was distinctly higher in 2011 than in 2010” and is above the 2% target set by the Federal Open Market Committee, “I see these changes as a signal that our country’s current labor market performance is much closer to 'maximum employment’ than the post-World War II U.S. data alone would suggest,” Kocherlakota said. “As I’ve argued in the past, appropriate policy should be responsive to such signals.”

Since the Great Recession, labor markets have been “less efficient,” he said, with employers unable to fill opening readily due to mismatched skills.

Economists differ on whether this pattern is “reversible under appropriate policy,” Kocherlakota said.

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