Lies and Employment Statistics

Catherine Rampell at the New York Times Economix blog examines the rate of job growth necessary to recover the jobs lost during the recession in the United States. The short answer she provides is that there is no short answer. There are almost seven million fewer employed people than there were when the recession began in 2007. At the rate of job growth enjoyed last month (244,000 new jobs in the month) it would take 29 months to return to the level of employment of before the recession. But the population (and more importantly the working age population) is growing, so there ought to be more jobs than there were before the recession. We might examine the unemployment rate for a better picture of the nation's economic health, but that is misleading too. The unemployment rate is found by dividing the number of employed persons by that number plus the number of people actively looking for work. A recovery in employment can actually increase unemployment as previously discouraged workers are driven to return to the job search. Indeed that very situation occurred in April.

Perhaps then, it would be better to look at the unemployment rate in conjunction with the labor force participation rate: the percentage of the population over 16 working or actively looking for work. Essentially it is the proportion of the population accounted for by the denominator of the unemployment rate. That number is at 64.4%, lower than it has been for the last twenty-five years but much higher than it was in the 1970s. But back when the labor force participation rate was traditionally this low, many women didn't work outside the home. They weren't discouraged workers who had given up; they never intended to work. So to adjust for that we can look at the male-only labor force participation rate. When we do that we find that an unprecedentedly small number of men over 16 are participating in the labor force. The increasingly equal position of women appears to have masked fundamental problems in the labor market. However, for the same reasons that other projections might have been too optimistic, this measure of the labor market is unnecessarily pessimistic. Now the denominator is too large rather than too small. There is a reason that many prefer the unemployment rate to the labor force participation rate; many of those not actively looking for work are discouraged people who would like to work, but a large and growing number are not. The ratio of workers to retirees is falling as the population ages, meaning the labor force participation rate would fall even in conditions of full employment. It's also possible that as more people on the opposite end of that age spectrum opt for college and graduate school, they drive down the labor force participation rate as well. In search of an answer to how far the US economy is from full employment, we can only say that no statistic tells the whole story.

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