The Labor Market: Now Slowly Getting Better
Liveblogging World War II: March 4, 1941

The Decoupling of the Unemployment Rate and the Employment-to-Population Ratio

FRED Graph  St Louis Fed

Greg Ip:

Free exchange | The Economist: THE phrase “new normal” is usually used to explain the persistence of underwhelming economic data.... Over the [past] two months employment advanced an average of 127,500, in line with the last five months. Many economists will say that 127,500 is just a neutral number, only enough to keep up with population growth. This, then, is the new normal: an economy that grows only fast enough to keep unemployment from rising, not strong enough to create the jobs needed to bring unemployment down.... The only problem with this story is... [t]he unemployment rate is falling: to 8.9% in February from 9.0% in January and 9.8% last November. For some reason, we seem to be able to get unemployment down with far lower rates of job creation than in the past. Why?...

The labour force, the share of the working-age population that either works or wants to work is growing at a strangely subdued rate. Participation (the share of the working age population in the labour force) is supposed to rise during recoveries as previously discouraged workers return to the job hunt. Instead, it’s fallen, to 64.2%, unchanged from January and down from 64.9% last March. Perhaps employers are reluctant to hire given their ability to squeeze more out of their existing work force.... But if lack of hiring were the problem we should see it show up in either the actual or hidden unemployed....

[T]he unemployment decouples from the overall health of the economy. Why? Perhaps the Great Recession has permanently diminished work opportunities for big swathes of the work force, in particular prime-age men. Perhaps America is now experiencing an echo of what older Europe and Japan already have: a demographically driven slowdown in potential growth. Or perhaps it’s one of those temporary statistical mysteries that will disappear soon...

I think that each jobless recovery produces an extra tranche of discouraged workers--albeit discouraged workers who don't call themselves discouraged workers, but if the labor market were stronger the labor force would be growing at a faster rate and changes in the employment-to-population ratio would be tracking changes in the unemployment rate as it is supposed to.

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