Revisiting the Employment-Population Ratio, August 2012 Edition!

Posted By PK Last updated August 23rd, 2012 10 Comments

Last we checked out one of the obscure numbers that relates to jobs in the United States, we were looking at a Employment-Population Ratio under 59%. Today let’s revisit that same ratio and see how much things have changed.

Parsing the Recent Employment Report

The first Friday of the month, the Bureau of Labor Statistics released a report in which the U-3 unemployment rate ticked up slightly from 8.2% to 8.3%. Nonfarm payrolls increased by 163,000 – at first glance a decent number, yet U-3 increased. (For the politically inclined, from 8.217% to 8.254%).

How is it possible that the unemployment rate increased in the presence of new jobs? Elementary! Population growth puts constant pressure on the rate (as long as it is positive), and since U-3 numbers count some people as out of the workforce (who likely aren’t be looking), increased job search activity from that demographic will increase the population that U-3 counts, increasing the rate.

Enter the Civilian Employment-Population Ratio, a much harder number to fake since it racks the number of people employed versus the population as a whole – so any sort of tricks or side effects from the official numbers can’t paper over changes (I’m not necessarily saying the official number is false – I agree with most of the criteria used to determine who is looking for work). Of course, natural factors would also lead to slight declines in the number – such as large numbers of people retiring (I’m talking about voluntarily, involuntary retirements we would want to track). That may be true of the Baby Boomers, but as you’ll see in a second… it can’t be the whole answer.

The number in July was 58.4%, a tick down from 58.6% last month, and down from 58.5% the last time we checked. And therein lies the problem with our recovery – sure, income gains have finally reached parity with pre-recession times, but this ratio is anemic. We’re staring at numbers we haven’t seen since the early 80s.

It can’t be all Boomers retiring, can it?

What do you think about this ratio? Do you think the job report was a good one, since nonfarm payroll numbers increased? What’s your favorite employment statistic?

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AverageJoe

That’s an incredibly ugly number. There were societal reasons why the employment rate was low in the 50s and 60s. To be approaching those numbers again helps explain EXACTLY why people don’t feel great about the “recovery”, I think.
- http://www.dqydj.net/ PK
  
  Societal meaning “the man works, the woman stays home”?
  
  I mean, in theory, I wouldn’t mind if people chose not to work – but that carries with it the fact that they would have to choose it (not be forced upon them with layoffs or businesses disappearing). Even someone retiring before they wanted to, even though it wouldn’t be considered ‘unemployment’ is sort of a big deal – but in a few years no one will know the difference. I, for one, will keep an eye on this number for now!
http://www.americandebtproject.com/ American Debt Project

The first time I saw this number was in USA today last year some time and it was much lower, around 54%. I wonder why? But in any case, I think this number makes sense. Is this the legal population of the US? I think it would be interesting to categorize the other 42% with some research — 8% unemployed, 6% business owners, 10% unreported (cash) earners, 10% living with parents and being lazy, 8% marijuana growers
- http://www.dqydj.net/ PK
  
  Sure you didn’t see 59%? Maybe it was a different ratio – we haven’t been that low since the 50s (that’s a good thing).
  
  Here’s what that number entails. I wish we could get data on all of those black market professions and unreported labor – the shadow economy is incredibly interesting (markets in everything!), but by it’s nature hard to track. Have you read this piece in Foreign Policy?
freeby50

Great topic. In that chart we can see a large drop in the ratio around 2008-2009 when the recession hit. Since then it has stabilized. THe employment-population ratio is going to be impacted by two things. Unemployment and labor force participation. So theres two distinct numbers that make this go down. For one we all know that unemployment went up from 2007 to 2011. Unemployment accounts for most of the steep drop here. You go from 5% unemployment to 8% unemployment and the employment-population ratio goes down 3%. However theres still about 2% change in the labor force participation rate. Thats due to a number of varying factors. Some are long term changes that had already been happening. From ’08 to ’12 we saw the unemployment numbers go down about 2%. I think it would be interesting to see all 3 figures together in the same chart. Unemployment %, laborforce participation ratio and employment-population ratio. That would give us a better picture of what has happened since ’08.
- http://www.dqydj.net/ PK
  
  I think your new article covers most of the decline, but let me get back to you on another treatment of this. As I mentioned on your site, 12 months is the cutoff – and I think it was originally proposed to change the rule way back under Reagan or Carter (it’s not a new thing). It probably does make unemployment a bit rosier. It’s one of those “who are you going to trust, me or your own lying eyes?” things… if people ‘feel’ like the economy is bad, it’s bad, no matter what the stats show.
  
  At a minimum I’ll make some charts for you!
Bret @ Hope to Prosper

I was 17 years old in the early 80s and it was very difficult to find a job. During the Jimmy Carter recession, it took me six months to get a job as a boxboy and I showed up twice a week, looking for the manager. I got the only open position in six months. Now days, if you send a kid out to get carts in the sun, they may not come back.
I believe there are four reasons why unemployment remains high:
1. Economic uncertainty caused by poor governance
2. Businesses are squeezing productivity and banking profits
3. Payroll taxes and benefits are set to rise (Obamacare)
4. Unemployment benefits are too long and generous
- http://www.dqydj.net/ PK
  
  I noticed ‘rebound effects from real estate bubble’ curiously missing, haha. I agree – it’s too long now to blame everything on late 2008. And, worse, calling this the ‘new normal’ is absurd too.
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Revisiting the Employment-Population Ratio, August 2012 Edition!

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