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Monday, June 06, 2011

How fast does employment growth need to be in order to simply maintain the current employment-population ratio?

In the "recovery" from the Great Recession (which began in December 2007 and reached its trough--the recovery officially began--in June 2009), the employment-population ratio more-or-less continuously declined from December 2007 (62.7%) to December 2009 (58.2%), and has stabilized since (at about 58.4%). If the current employment-population ratio had regained its pre-recession level, employment (as measured by the BLS househld survey) would have been 150,049,000 in March 2011, instead of 139,779,000; we are about 10 million jobs below where we would have been had we simply returned, over the past roughly two years since the recovery began.

If household employment had grown at its long-term trend (about 0.19% per month) since December 2007 (about 139,750,00), it would have reached about 158,250,000 by March 2011--about 18.5 million above the actual level.

Establishment employment--which was about 138 million in December 2007--had continued to grow at its long-term trent (about 0.21% per month), it would have reached about 150 million by March 2011. It was actually just about 131 million--a deficit of about 19 million jobs.

So the economy is currently somewhere between 10 million and 20 million jobs below where it would have been had we simply continued to grow at something approaching our historical rate.

What about going forward? Suppose we conclude that the old employment-population ratio was too high to be sustainable, that what is sustanable is the current--58.4% EPR (not the 62.7% EPR of December 2007, not the peak EPR of 63.4% of December 2006). How fast would employment have to grow in order to "keep up" with population growt, simply to maintain an employment population ratio of 58.4%?

The US working-age population (age 16 and over) has grown at an average (compound) monthly rate of 0.178% since 1976. So if population growth continued at that rate, employment as measured by the household survey would also have to grow at a monthly rate of 0.178%--or at about 250,000 jobs per month now, rising to about 260,000 jobs per monmh by the end of 2012. If we use the establishment measure of jobs instead, we would need to add about 235,000 jobs per month now (rising to about 240,000 by the end of 2012).

Since the official end of the recession--since the June 2009 trough--household employment growth has exceeded 250,00 only seven times (and has averaged only 107,000--less than half the employment growth we "need"). Establshment growth has exceeded 240,000 twice (and has exceeded 230,000 on two other occasions), averaging 101,000.

It is no wonder that the employment-population ratio has declined since the recovery began, and it is no wonder that the unemployment rate has declined only modestly (and that decline is, essentially, a result of much slower than normal growth in the labor force during a recession), from 9.% to 9.1%. [By contrast, in the year-and-a-half following the trough of the 1982 recession (November 1982), the unemployment rate fell from 10.8% to 7.4%.]

The real difficulty is that the economy seems unlikely to grow fast enough in the coming years to do much to move us back to our pre-recession employment picture. To get much in the way of rapid employment growth and rapid declines in the unemployment rate and even a modest increase in the emplopyment-population ratio will require annual GDP growth of around 5%. The current consensus forecasts are around 3%--or long-term-trend growth.

It looks like a bleak several years going forward.

(All data may be found on the BLS web site,


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