Category Archives: U.S. labor force

26/7/19: Stop Equating Low Unemployment Rate to High Employment Rate

There is always a lot of excitement around the unemployment stats these days. Why, with near-historical lows, and the talk about 'full employment', there is much to be celebrated and traded on in the non-farm payrolls stats and Labor Department press releases. But the problem with all the hoopla around these numbers is that it too often mixes together things that should not be mixed together. Like, say, mangos and frogs, or apples and moths.

Take a look at the following data:

Yes, unemployment is low. Civilian unemployment rate is currently at seasonally-adjusted 3.7% (June 2019), and Unemployment rate for: 20 years and over, at 3.3%, seasonally adjusted. On 3mo average basis, last time we have seen comparable levels of Civilian unemployment was in 1969, and 20+ Unemployment rate was in 2000. Kinda cool, but also revealing: historical lows in unemployment require Civilian unemployment metric to confirm. Which means that factoring in Government employment, things are bit less impressive today. But let us not split hairs.

Here is the problem, however: record lows in unemployment are not the same as record levels in employment. Low unemployment, in fact, does not mean high employment.

To see this, look at the solid red line, plotting Employment rate for 20 years and older population. The measure currently sits at 71.2 percent and the last three months average is at 71.1 percent. Neither is historically impressive. In fact, both are below all months (ex-recessions) for 1990-2008. Actually, not shown in the graph, you would have to go back to 1987 to see the same levels of employment rate as today. Oops...

But why is unemployment being low does not equate to employment being high? Well, because of a range of factors, the dominant one being labor force participation. It turns out (as the chart above also shows), we are near historical (for the modern economy's period) lows in terms of people willing to work or search for jobs. Or put differently, we are at historical highs in terms of people being disillusioned with the prospect of searching for a job. Darn! The 'best unemployment stats, ever' and the worst 'willingness to look for a job, ever'.

U.S. Labor Force Participation rate is at 62.9 percent (62.8 percent for the last three months average). And it has been steadily falling from the peak in 1Q 2000 (at 67.3 percent).

When we estimate the relationship between the Employment rate and the two potential factors: the Unemployment rate and the Participation rate, historically (since 1970s) and within the modern economy period (since 1990) as well as in more current times (since 2000), and since the end of the Great Recession (since 2010) several things stand out:

Unemployment rate is weakly negatively correlated with Employment rate, or put differently, decreases in unemployment rate are associated with small increases in employment; across all periods;
Labor force participation rate is strongly positively correlated with Employment rate. In other words, small increases in labor force participation rate are associated with larger increases in employment; across all periods;
Labor force participation rate, in magnitude of its effect on Employment rate, is roughly 14-15 times larger, than the effect of Unemployment rate on Employment rate; across all periods; and
The relatively more important impact of Labor force participation rate on Employment, compared to the impact of Unemployment rate on Employment has actually increased (albeit not statistically significantly) in the last 9 years.

These points combined mean that one should really start paying more attention to actual jobs additions and employment rate, as well as participation rate, than to the unemployment rate; and this suggestion is more salient for today's economy than it ever was in any other period on record.

But above all, please, stop arguing that low unemployment rate means high employment. Bats are not cactuses, mangos are not moths and CNN & Fox kommentariate are not really analysts.

15/4/19: One order of "Bull & Sh*t" for the U.S. Labor Market, please

The 'strongest economy, ever'...

Despite a decade-long experiment with record-low interest rates, despite trillions of dollars in deficit financing, and despite headline unemployment numbers staying at/near record lows, the U.S. economy is not in a rude health. In fact, by two key metrics of the labor force conditions, it is not even in a decent health.

As the chart above clearly shows, both in terms of period averages and in terms of current level readings, Employment to Population Ratio (for civilian population) has remained at abysmally low levels, comparable only to the readings attained back in 1986. Meanwhile, labor force participation rate is trending at the levels consistent with those observed in 1978.

Dire stuff.

Update: Here is a chart showing how the current recovery compares to past recoveries (hint: poorly):

15/4/19: One order of "Bull & Sh*t" for the U.S. Labor Market, please

The 'strongest economy, ever'...

17/5/18: U.S. Labour Markets and the Trump Administration Record

The Global Macro Monitor have published an exhaustive study of the U.S. labour market trends over the first 15-16 months of the President Trump's tenure. The post is long, brilliantly detailed, and empirically and intuitively flawless (yeah, I know, I don't think I ever used this descriptor of an economics research piece before). So read it in full here: https://macromon.wordpress.com/2018/05/15/deconstructing-the-u-s-jobs-market/.

Top line conclusions are:

Comparing the "first 15 [monthly] payroll reports of the Trump administration to the last 15 of the Obama administration", "as of the end of April 2018, the Trump economy has generated 2.7 million jobs versus 3.1 million in Obama’s economy, or 373k fewer workers added to payrolls"
Growth in employment was of lower quality during the Trump tenure to-date too: "the private sector has also added 124k fewer jobs in the Trump economy. Net job creation in the government sector under President Trump is relatively flat." The latter metric puts a boot into the arguments that President Trump is a fiscal conservative aiming to reduce public sector weight in the economy.
Earnings comparatives are also wobbly: "There is relatively little difference in the growth of average hourly earnings in the Trump and Obama employment reports." Which is more striking when one recognises that the Trump Administration inherited a tightening labour market, in which, normally, one would expect more wages inflation.
"Job creation in President Trump’s economy outperforms the Obama economy in 5 of the 13 private sector industry groups, most significantly in manufacturing and mining", but "Almost all of the relative outperformance in mining is the result of the reversal in oil prices. Coal mining and auto manufacturing employment has not recovered". In other words, even in the core industries targeted by the Administration for growth, the Administration efforts have little to do with any recovery in the mining sector./
Cyclically, the authors note that "The results are surprising as GDP growth was significantly higher during the Trump payroll reports, averaging of 2.53 percent on an annual basis, versus 1.56 percent during the last five quarters of the previous administration". However, this also means that current jobs creation is coming toward the end of the expansion cycle, and can be expected to be lower due to constraints of labour supply.
Key observation, from macroeconomic environment point of view is that "the economy continues to reward capital over labor disproportionately". There is a fundamental problem with this development. The U.S. labour markets flexibility represents a net positive for the private sector productivity in the short run. However, as capital and technological deepening of production processes progresses, the very same flexibility leads to lower degree of upskilling and re-training of the existent workforce. This is a huge source of risk and uncertainty for the U.S. economy forward in terms of longer run potential growth and productivity growth.

In short, read the original post - it is packed with highly informative and very important data and observations!

Source: https://macromon.wordpress.com/2018/05/15/deconstructing-the-u-s-jobs-market/

28/2/18: San Francisco Fed Research: Secular Stagnation Confirmed

This blog has been consistently warning about the continued pressures on the U.S. (and global) economy. In fact, bringing together two strands of research my a range of economists, I defined the term 'twin secular stagnations' to describe a trend of structural long term decline in the potential growth rates on

The supply side of the U.S. economy (productivity growth and technological progress slowdowns, along with monopolization trends in the economy, or the supply side secular stagnation), and
The demand side (excessive leverage, growing asymmetry in distribution of productive capital ownership, and ageing-induced changes in savings, consumption and investment, or the demand side secular stagnation).

The topic has not gone away, even though media commentariate in the U.S. and elsewhere have been fully consumed by the waves of optimism stemming from the tale of a 'robust growth' cycle.

Well, guess what: the 'spectacular' or 'tremendous' (using White House terminology) growth is largely a cyclical phenomena, as the latest research from the U.S. Federal Reserve Bank of San Francisco indicates. You can read the full note here: https://www.frbsf.org/economic-research/files/el2018-04.pdf. The core is in this chart:

You can see the flattening out and the decline in the cyclically-adjusted growth rate (the blue line). This line shows us the rates of growth smoothing out the effects of growth-and-recessions cycles. Secular stagnation is still here: "As expected, the cyclical adjustment removes the sharp drop in actual output associated with the recession. But since then, the trajectory of the blue line is nowhere close to a straight line projection from the 2007 peak. Rather, cyclically adjusted output per person rose slowly after 2007 and then plateaued in recent years."

The authors link this worrying development to supply-side slowdown in productivity growth, and they clearly state that this slowdown in productivity growth pre-dates the Great Recession. In other words, the collapse in productivity growth is structural, not cyclical.

"The seeds of the disappointing growth in output were sown before the recession in the form of slow productivity growth and a declining labor force participation rate. Quantitatively, relative to the recoveries of the 1980s, 1990s, and early 2000s, cyclically adjusted output per person has grown about 1¾ percentage points per year more slowly since 2009. According to our analysis, about a percentage point of this is explained by the shortfall in productivity growth and about ¾ percentage

point is explained by the shortfall in labor force participation."

The latter is shocking!

So no, folks, the U.S. economy has not been doing 'ugely' well since 2009. It has not been doing better, either, than in the pre-crisis period. In fact, the U.S. economy has lost a lot of its long run economic growth potential. And so far, there is absolutely nothing anyone in Washington is willing to do about changing that long-term decline, because doing so will require deep reforms and rebalancing of the economy away from oligopolistic and monopolistic competition, away from rent seeking, away from rewarding physical capital at the expense of human capital, as well as reducing massive drags on demand side, including healthcare and education costs, debt overhang in households (especially younger cohorts), abating skyrocketing rents & property inflation in key urban locations, and so on.

Care to suggest any party in Washington willing to tackle these?..