Unemployment is almost back to normal, but the economy isn't.

That isn't because the unemployment rate is a conspiracy to make things look better than they really are. It's because even though the unemployment rate tells us the most about the labor market, it doesn't tell us the full story. All it does is show us how many people who are actively looking for work can't find it. But that leaves out the "shadow unemployed" who want full-time jobs but have either given up looking for them or can only find part-time ones. That usually doesn't make that big a difference, but it does now, because, even six years after the crisis has ended, there still isn't much that's usual about this economy.

Now if you add it all up, this shadow unemployment means our jobs hole is more than three times as big as it looks. That, at least, is what economists Danny Blanchflower and Andrew Levin found when they looked at how low the unemployment rate is versus how low we think it could go, how high the participation rate is versus how high we think it could go, and how many people can only find part-time jobs. That first part tells us how much further unemployment itself could fall, the second how many discouraged workers could come back, and the last how many people would work more if they could. In other words, it shows us the gap between how many full-time jobs we have and how many full-time jobs we need. The result, as you can see above, is that instead of being a million full-time jobs short, like the unemployment rate says we are, we're about 3.5 million short.

Source: Blanchflower and Levin
Source: Blanchflower and Levin

So it's no surprise that workers still aren't getting raises. Even though it looks unemployment is low enough that they should have more bargaining power, shadow unemployment is high enough that they don't. Indeed, it's not often that shadow unemployment is a bigger problem than regular unemployment, but this is one of those times. That's why it could be awhile—and it'd be a mistake if it isn't—before the Federal Reserve raises rates from zero. Now they'd been hinting that could come as soon as June, but the past few months of disappointing data have already forced them to backtrack a little. That's partly, as Greg Ip points out, because just talking about tightening is tightening. In other words, if you say that you're going to raise rates sooner than people expect, then they'll react as if you already did—and growth will start to slow down. It's a paradox where the economy only looks like it's ready for higher rates as long as you don't say higher rates are coming.

But the other part is that those hints were probably premature anyway. Economists can estimate how much shadow unemployment is left, but it's hard to say much more than that—who knows how many discouraged workers will come back?—which is why it makes sense to keep rates at zero until wages are rising. That's the market's way of telling us that there aren't as many people who want full-time jobs but can't find them. And besides, it's hard to imagine inflation taking off before that.

The recovery still has a long way to go, if we'll let it.