Thursday, September 19, 2013

Employment Rate Far Below Pre-recession Trend

Excerpted from Forbes (September 2013) referencing Stephen Bronars (at Twitter), a Senior Economist at Welch Consulting, an Adjunct Professor of Economics at Georgetown, with a Ph.D. in Economics from the University of Chicago:

The employment-to-population ratio, adjusted for demographic changes in the population, is a far superior barometer of the labor market than the unemployment rate. The decline in the unemployment rate in the past year has been misleading because it ignores discouraged workers (the unemployed who have abandoned their job search).

The employment-to-population ratio for adults 25 to 54 (too old to be enrolled in school and too young to be retired) is about 4 percentage points below pre-recession levels, and is a more reliable labor market indicator than the unemployment rate.

A fairly simple alternative labor market indicator is the full-time equivalent (FTE) employment-to-population ratio relative to trend (where FTE equals full-time employment plus half of part-time employment). Longer term trends in employment rates differ by age group, and this should be taken into account when comparing the FTE employment rate to its overall trend:

  • The FTE employment rates of adults under age 25 have trended down for years as young adults have shifted from work to school [and is] currently 2.8% below its projected trend, representing a shortfall of about 1.1 million full-time jobs.
  • The FTE employment rate and its trend for adults age 25-54 is 2.7% below its projected trend for a shortfall of another 3.3 million full-time jobs.
  • The FTE employment rate of older adults (55 and above) is 3.9% below its trend for a shortfall of approximately 3.3 million full-time jobs.

Aggregating across all age groups: The FTE employment rate is 7.7 million full-time jobs below its pre-recession trend. This means that full-time equivalent employment in the U.S. is about 6.1% below trend measured as a percentage of FTE employment. (As Stephen Bronars says at Twitter, "It's not pretty.")

As an aside: According to the Center on Budget and Policy Priorities, 8.7 million jobs were already lost between the start of the recession in December of 2007 and June of 2009. And according to the Bureau of Labor Statistics (as of 2011) 8.1 million American workers were "job losers" (workers who lost their jobs and those who completed temporary jobs).

In the 50 months since June 2009 (when the Great Recession "officially" ended) an estimated 6.3 million jobs have been created in the private sector while more than 750,000 jobs were lost in the public sector --- while at the same time, over 3 million young adults have been graduating from high school every year.

According to Congressional Budget Office estimates, we have about 3.4 million "missing workers" (as in "discouraged workers") and if they were all counted, the unemployment rate would be 9.4% (but if the government only admits to 3.4 million, then we can presume that there are many more) --- Also, from CNN:

"We need 8.3 million jobs to get back to the pre-recession unemployment rate, considering the 2 million jobs we are still down from the start of the Great Recession in December 2007, plus the 6.3 million jobs we should have added since then, just to keep up with normal growth in the potential labor force."

Back to Stephen Bronars > Some of the FTE employment gap is reflected in the elevated 7.3% unemployment rate, but much of the difference represents either discouraged workers or an unusually high fraction of adults in part-time jobs.

More importantly, the large FTE employment gap means less aggregate economic activity, less consumption and savings, lower tax revenue and more government spending on income support programs.

The distinction between unemployment and non-participation is tenuous when a deep recession is followed by a weak jobs recovery.

* A September 13th Tweet from Stephen Bronars: "Continued downward trend in new UI claims means that fewer of the jobless are recent job losers & more are new entrants and re-entrants."

Meaning: They don't qualify for UI benefits, because they either haven't worked long enough to qualify, or because they have already exhausted all previous UI benefits that their were entitled to before being rehired again. There also those who did qualify for UI benefits, but never filed a claim (which could also potentially cancel out all the "welfare fraud" that the GOP claims is wide-spread). Meaning: UI claims are also not a very good measure unemployment.

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