The Employment Situation

Now that the employment data for September have been reported, we can look at the changes in the labor market situation as shown in the household survey over the past decade. In the following table, I have reported data for civilian population, for the labor force, and for employment, as well as for the labor force participation rate, the employment population ratio, and the unemployment rate, for September of the indicated year.

Pop LF Emp LFPR EPR UR
1994 197,248 131,421 123,775 66.63% 62.75% 5.82%
2000 213,163 142,685 136,908 66.94% 64.23% 4.05%
2003 221,779 146,610 137,731 66.11% 62.10% 6.06%
2004 223,941 147,483 139,641 65.86% 62.36% 5.32%
2004H1 6.41%
2004H2 6.84%
2004H3 5.86%

Between September 1994 and September 2000, both the LFPR and the EPR increased, but the EPR rose much more rapidly (+2.35%, compared with 0.46%). The necessary consequence was that the UR fell dramatically.

Between 2000 and 2003, both the LFPR and the EPR fell. The LFPR continued to fall into 1994. Historically, the EPR falls during recessions, so the decline in the EPR may not be all that surprising. However, since the mid-1960s, there has never been a four-year period within which the LFPR actually fell. Again, not surprisingly, the UR increased from September 2000 to September 2003.

Between September 2003 and September 2004, the LFPR continued to fall. It's now at the same level that it was in October 1989. And the EPR rose fractionally (by 0.4%). The consequence is that the UR fell from 6.06% to 5.32%.

The decline in the UR clearly overstates the improvement in the employment situation for households. The final three rows in the table show what the UR would have been under three hypothetical situations. In the hypothetical labeled 2004H1, I calculate the effect on the UR had the LFPR remained at its September 1994 level. 2004H2 shows the UR if the LFPR had remained at its September 2004 level. Finally, 2004H3 is based on the LFPR that existed in September 2003. (A fairly simple time-series projection, taking into account the changes in the LFPR over time, suggests a "trend" LFPR of about 66.3%.)

Clearly, most of the decline in the UR in the last year is a consequence of the decline in the LFPR, not of an improvement in labor market conditions. Despite the increase in EPR in the last year, it remains significantly below its level of most of the last decade. For whatever reason, and for the first time in nearly 40 years, a smaller percentage of the population seeks to work.