Brookings: Topics - Human Capital

Unemployment Projected to Remain at 7.6 Percent for April, But Expected to Drop Faster in Near Future

Regis Barnichon — Thu, 02 May 2013 10:30:00 -0400

This post discusses my monthly update of the Barnichon-Nekarda model. For an introduction to the basic concepts used in this post, read my introductory post (Full details are available here.)

Over the past months, the Barnichon-Nekarda model has been surprised by lower than expected unemployment numbers. Taking the positive news from the March report on board, the model now foresees a faster labor market rebound, and anticipates a rising rate of decline in unemployment over the next six months. I now expect a jobless rate of 7.1% in September 2013, compared to 7.6% as of last month.

In March, the unemployment rate dropped to 7.6%, noticeably lower than the model’s forecast (7.8%, see Table 1). As was already the case last month, the model was surprised by the rate of improvement in the job separation rate: the EU rate, comprised mostly of layoffs (Figure 2), has been declining faster than anticipated over the past couple months.

Going forward, the model now sees the recent labor market improvements as signaling a faster rebound in the labor market. It now projects a faster decline in unemployment over the next 6 months, with a progressive increase in the rate of decline. In fact, the jobless rate is now projected to reach 7.1 % by September 2013, significantly lower than the 7.6% projected as of last month’s forecast (Figure 1).

The intuition for this forecast is easily understood by looking at the projected behavior of the “steady-state” unemployment rate. The steady-state unemployment rate, the rate of unemployment implied by the underlying labor force flows—the blue line in figure 5— stands currently at 7.1% (versus7.4% in the previous forecast). Our research shows that the actual unemployment rate converges toward this steady state. With a steady-state unemployment rate significantly lower level than the actual rate, this "steady-state convergence dynamic" is now pushing the unemployment rate down. As the difference between actual and steady-state rates increased since last forecast, the force pushing the unemployment rate down is now stronger, implying a faster decline in unemployment than previously anticipated.

In addition, the model now also foresees a faster decline in the steady-state unemployment rate itself, with a rate of 6.7% in September, significantly lower than the 7.3% anticipated as of last month (Figure 5). The "steady-state convergence dynamic" pushing the unemployment down will gain in strength and generate a rising rate of decline in unemployment.

More specifically, the model propagates forward its best estimate for how the flows between employment, unemployment and out-of-the labor force will evolve over time, and constructs the implications for the steady-state unemployment rate and hence the actual unemployment rate. With continued improvements on the hiring and job separation fronts over the past months, the model now anticipates a markedly faster increase in workers’ job finding rate over the next 6 months (UE, figure 3) and even (for the first time in months) a small decline in the rate of job separation (EU, figure 2). As a result, the steady-state unemployment rate is now projected to decline much faster.

Authors

Regis Barnichon

Bad News in March: Tepid Job Gains and a Shrinking Workforce

Gary Burtless — Fri, 05 Apr 2013 10:49:00 -0400

Employers added only 88,000 workers to their payrolls in March, far off the pace of job gains in the previous six months. Between August 2012 and February 2013 payrolls grew at an average rate of 197,000 a month; private payrolls rose slightly faster than 205,000 a month. The much slower pace of job gains in March may foreshadow a slowdown in payroll growth over the next few months as fiscal contraction at the federal level begins to bite.

Employment gains reported in the household survey show an even bleaker picture of the job market. The number of adults in the household survey who report holding a job fell 206,000 in March, capping a 5-month period in which reported employment losses have averaged 34,000 a month. The unemployment rate declined 0.3 percentage points between October and March, and 0.1 percentage point in March, because the labor force shrank an average of 137,000 a month during the period.* The labor force participation rate reached a 35-year low in March, dipping to just 63.3% of the adult population. The last time the participation rate was this low was in the Carter Administration.

A small part of the recent drop in the labor force is traceable to population aging. The large baby boom generation is now in its 50s and 60s, ages when participation in the workforce falls rapidly. However, most of the drop since last November is explained by continued weakness in the job market and the decline in the availability of long-term unemployment benefits. When it is hard to find a job, some workers become discouraged and stop looking. Others who would be expected to join the workforce fail to do so. Some workers who cease looking do so because they’ve exhausted their eligibility for unemployment benefits. In order to collect an unemployment check nearly all laid-off workers must actively search for a new job. They have less reason to pore over want ads and pound the pavement when their unemployment check stops. As the maximum duration of regular and extended benefits has been scaled back, laid-off workers are now exhausting their unemployment benefits sooner after a layoff than was the case a year or two ago.

The March jobs report shows some continued areas of strength. The average workweek edged up 0.1 hours. Employment in the construction industry increased for the 10^th consecutive month, though at a slower pace. Professional and business services and the health care sector also showed continued strength. Retail employment, however, fell 24,000 after enjoying a year of solid gains.

As usual, government payrolls shrank in March, falling 7,000, about the average rate of monthly decline in the previous year. Federal government employment declined 14,000 in March, more than offsetting small gains in state and local government employment. The drop in federal government payrolls accounts for almost two-thirds of the overall drop in public employment over the past year. Policymakers in Washington seem intent on scoring an own goal. Not only have they adopted fiscal policies that weaken demand for private-sector workers, they are directly contributing to the nation’s job woes by trimming the government workforce and reducing the annual pay of federal employees. Job seekers will have to hope that continued strength in the private sector prevails against these headwinds.

* The estimated 5-month changes in employment and the labor force account for BLS’s annual population adjustments in January.

Authors

Gary Burtless

Image Source: © Lucas Jackson / Reuters

Unemployment Projected to Rise Very Slightly to 7.8% for March

Regis Barnichon — Wed, 03 Apr 2013 00:00:00 -0400

The unemployment numbers for February were in line with last month's forecast: The labor market keeps improving thanks to a slow but steady improvement in hiring. However, progress remains very slow, and I project a jobless rate of 7.8% in March, going down to 7.6% by September 2013.

This post discusses my monthly update of the Barnichon-Nekarda model. For an introduction to the basic concepts used in this post, read my introductory post (Full details are available here.)

In February, the unemployment rate was 0.2 percentage point lower than in January, in line with my February forecast (see Table 1), but the decline was a little faster than anticipated. This is mostly due to a stronger than expected decline in the rate of job separation (the EU rate, comprised mostly of layoffs), as can be seen in Figure 2.

Going forward, the model sees that stronger decline in layoffs as transitory, and I anticipate the unemployment rate to tick back up slightly to 7.8% in March (specifically, from 7.74%, rounded to 7.7% in February, to 7.79%, rounded to 7.8% in March), reversing some of the gains on the layoff front. Thereafter, improvements in the labor market will continue, albeit at a slightly slower pace than anticipated in February, and I project the unemployment rate to decline slowly over the next 6 months to reach 7.6 % by September 2013.

The intuition for this forecast is easily understood by looking at the projected behavior of the “steady-state” unemployment rate. The steady-state unemployment rate, the rate of unemployment implied by the underlying labor force flows—the blue line in figure 5—stands currently at 7.4% (unchanged from February). Our research shows that the actual unemployment rate converges toward this steady state. With a steady-state unemployment rate at a lower level than the actual rate, this "steady-state convergence dynamic" is now pushing the unemployment rate down. However, because the difference between actual and steady-state rates is small (7.7% versus 7.4% in February), the force pushing the unemployment rate down is weak, and the decline in the unemployment rate is slow.

Over the next six months, the model propagates forward its best estimate for how the flows between employment, unemployment and out-of-the labor force will evolve over time, and constructs the implications for the steady-state unemployment rate and hence the actual unemployment rate. In February, job openings decreased, indicating a possible moderation in the (already slow) pace of hiring. Taking this new information on board, and compared to February, the model now predicts an even slower increase in workers’ job finding rates (figure 3) over the next 6 months. As a result, the steady-state unemployment rate is now projected to decline to only 7.4% by September 2013, instead of 7.2% in my February forecast, implying a slower decline in the actual unemployment rate.

Finally, let me end this post with a few words of congratulation for the model’s remarkable performance over the past 6 months: Back in October, for the first update of this series of monthly forecasts, the model predicted that "Unemployment [was] Likely to Stay Around 7.8% for Six Months," and this is exactly what happened. Of course, this need not always be the case, but this is a notable achievement that speaks for the potential of this new approach to forecasting unemployment.

Authors

Regis Barnichon

Image Source: © Brendan McDermid / Reuters

Sizeable Job Gains, but a Long Way from Good Health

Gary Burtless — Fri, 08 Mar 2013 12:26:00 -0500

Employers added 238,000 workers to their payrolls in February, the 29^th consecutive month of job gains. Over the past six months employers have added 187,000 jobs a month, a rate of gain that is fast enough to reduce the ranks of the unemployed. The unemployment rate, which is calculated using a different survey, dropped to 7.7% in the month, its lowest level since December 2008.

As has been the case for most of the past year, the employer survey offers a brighter picture of progress than the Labor Department’s household survey. Reported job gains in the household survey were only 170,000 in February. An important reason the unemployment rate fell 0.2 percentage points in the month is that the number of adults who are employed or looking for work fell 130,000. Over the past year, the household survey shows that the labor force participation rate has declined 0.4 percentage points. Part of the decline is traceable to the aging of the population. A large number of workers in the Baby Boom generation are reaching retirement age each month, shrinking the percentage of adults who would be expected to work. Since the end of the last economic expansion in December 2007, the participation rate has fallen 2.5 percentage points. About half the decline is due to an aging population. The other half can be traced to a discouraged worker effect. The weakness of the job market discourages some adults from joining the workforce and induces others to give up their search for a job.

Nonetheless, employers continue to report sizeable gains in their payrolls. As has been the case since the labor market recovery began, all the gains have occurred in the private sector. In fact, the number of workers on government payrolls shrank in February. Notable employment gains were seen in professional and business services (+73,000 jobs), construction (+48,000), and retail trade (+24,000). The improvement in construction employment is especially encouraging because that industry has experienced very little net employment growth since the low point of the recession. In the past four months, seasonally adjusted job gains have averaged 34,000 a month.

The health care industry continues to add to its payrolls. In 2009 through 2011 health care payrolls increased about 20,000 a month. Last year they rose nearly 27,000 a month, and they have continued to increase a healthy clip so far this year. The job gains in health care appear strong in contrast to anemic payroll trends in most other industries. However, the payroll numbers show there has been a long-term slowdown in the pace of job gain in the health sector. Whereas health care payrolls climbed 2.7% a year between 1991 and 2007, they have only grown 2.0% a year since the end of the last economic expansion.

The household survey offers a mixed picture of the current state of the unemployed. The broadest measure of unemployment, the so-called U-6 measure which accounts for workers on involuntary short hours and discouraged workers who remain marginally attached to the labor force, fell to 14.3% in February, its lowest level since January 2009. However, both the average and median duration of an unemployment spell in progress edged up in February, mainly because of an increase in the number of unemployed workers reporting they were in long unemployment spells.

Long-term unemployment remains extraordinarily high by historical standards (see chart below). Spells of unemployment longer than 6 months are classified as “long-term.” Between 1967 and 2007 the fraction of the labor force in a long-term unemployment spell averaged 0.9%, and never exceeded 2.6%. Since 2008 the long-term unemployment rate has averaged 3.1% and rose as high as 4.3% in 2010. As the job market has improved, the number of long-term unemployed has shrunk. Even so, the long-term unemployment rate in February remained a bit above 3%. In spite of sizeable gains in payroll employment in recent months, the labor market remains a long way from robust good health.

Authors

Gary Burtless

Unemployment Projected to Decline to 7.8 Percent for February

Regis Barnichon — Tue, 05 Mar 2013 12:00:00 -0500

The unemployment numbers for January were in line with last month's forecast: The labor market keeps improving, and the January uptick only reflected the inertial dynamics of unemployment. With a slow but steady improvement in hiring, I project a slow but steady decline in the unemployment rate over the next six months, with a jobless rate of 7.8% in February going down to 7.4% by September 2013. The caveat on the projection is that there be no additional damage to the labor market (e.g., from large arbitrary spending cuts).

This post discusses my monthly update of the Barnichon-Nekarda model. For an introduction to the basic concepts used in this post, read my introductory post (Full details are available here.)

The January uptick in unemployment was expected (see last month forecast in Table 1 and my post here) and is no cause for worry, because it simply reflected the normal dynamics of unemployment. The intuition for that uptick can be understood by looking at the behavior of the “steady-state” unemployment rate. The steady-state unemployment rate, the rate of unemployment implied by the underlying labor force flows—the blue line in figure 5—hovered around 8 percent in the past couple months and was above the actual unemployment rate. This is mostly because workers' job finding rates (i.e, hiring) declined sharply in November (probably reflecting the effect of Hurricane Sandy) and because worker's separation rate (layoffs) increased sharply in November (probably also related to Sandy). Our research shows that the actual unemployment rate converges toward the steady state unemployment rate, and this convergence process generates some inertia in the behavior of unemployment. At December's level of 7.8 percent (Table 1), the unemployment rate was slightly above its steady-state rate, which pushed up the unemployment rate up in January. In other words, the January uptick is simply a late effect of Hurricane Sandy.

Looking forward, the current value of steady-state unemployment rate is now significantly lower (at 7.4%), and the "steady-state convergence dynamic" is now pushing the unemployment rate down. With a projected steady-state unemployment rate at 7.2 percent in September 2013, I project the unemployment rate to slowly decrease over the coming months and to reach 7.4 percent in September.

More precisely, the model propagates forward its best estimate for how the flows between employment, unemployment and out-of-the labor force will evolve over time, and constructs the implications for the unemployment rate. In January, job openings increased, and new claims for unemployment insurance continued their decline. Consequently, the model now projects sizable improvements in workers’ job finding rates (figure 3) over the next 6 months, and the outlook for the job separation rate (or layoffs) is improving (albeit, very slowly, figure 2). As a result, the steady-state unemployment rate is now projected to decline to 7.2% by September 2013, bringing the unemployment rate down with it.

To read more about the underlying model and the evidence that it outperforms other unemployment rate forecasts, see Barnichon and Nekarda (2012).

Authors

Regis Barnichon

Economic Recovery, Not the Deficit, Is the Number One Problem

Henry J. Aaron — Thu, 07 Feb 2013 14:08:00 -0500

The preeminent domestic challenge that the United States faces is returning the nation as rapidly as feasible to full employment. The State of the Union should focus on how best to do that. This is today’s problem. The waste of potential output, currently running at roughly $1 trillion a year, is bad enough. The erosion of human capital of the millions of long-term unemployed and the blighted careers of the millions of young labor force entrants are even worse, injuries from which the nation will suffer for decades in lost potential output even after full employment is restored.

The problem that has mesmerized the nation of late, the long-term structural deficit, will eventually cause problems if left unattended. But it is not the most urgent problem the nation faces today. The optimal policy response both to the catastrophe of lost output and lost human resources and to the long-term structural deficit would be increased fiscal stimulus today combined with a combination of spending cuts and higher taxes set to take effect after the nation has returned to full employment. Unfortunately, fiscal policy today is acting as a drag on the economy, rather than helping the recovery. And things threaten to get much worse when, as now seems likely, the sequester takes effect.

Authors

Henry J. Aaron

Image Source: © Lucas Jackson / Reuters

Upward Revisions Offer Brighter Picture of Job Growth

Gary Burtless — Fri, 01 Feb 2013 16:05:00 -0500

Employers added 157,000 workers to their payrolls in January, the 28th consecutive month of job gains. The unemployment rate, which is calculated using a different survey, edged up slightly in the month. It has remained approximately unchanged since last September. Overall, the latest employment report shows little change in the steady trend toward an improved job market.

The more interesting aspect of the report is the light it sheds on employment growth over the past two years. Following its usual practice the BLS issued revisions in its past estimates of the previous two years’ payrolls. The new estimates are based on updated and comprehensive reports from employers. The revisions substantially raise previous BLS estimates of job gains in 2011 and 2012. Compared with the payroll numbers published in early January 2013, the most recent report shows employers added an extra 263,000 jobs in 2011 and 335,000 extra jobs in 2012. In combination, the new numbers boost estimated job gains in the last two years by almost 600,000, or 16%. Payroll jobs lost in the Great Recession are being replaced considerably faster than we thought a month ago.

In the employment report issued in January, the BLS estimated that monthly job gains in the October-December quarter averaged slightly more than 150,000 a month. This is a decent though not extraordinary pace of job growth. The U.S. economy needs to generate about 90,000 new jobs a month to keep up with the growth in the working-age population. If payrolls are climbing 150,000 a month, the pace of job growth is fast enough to gradually reduce the nation’s unemployment rate. The revised payroll numbers published today suggest that job gains in the October-December quarter averaged slightly more than 200,000 a month. Thus, employment increases in the last quarter of 2012 were more than twice as fast as the gains needed to accommodate the growth of the working-age population. We should expect to see the unemployment rate fall in future months, possibly by a faster pace than we have seen over the past year.

The optimistic picture of job growth in recent months seems hard to square with the downbeat report on GDP issued by the Commerce Department earlier this week. There are a variety of reasons that an initial report of GDP growth may provide a gloomier picture of the state of the economy than the picture that emerges from the jobs report. At this stage, both the GDP and payroll employment reports are based on data that are subject to revision as more complete information becomes available. Nonetheless, the payroll employment statistics show a consistent picture of improvement in payrolls, and the revisions reinforce the view that private-sector employers see a steadily increasing need for new employees.

The demand for workers in the public sector continues to be weak. Total government employment fell slightly in January. It has declined 74,000 in the 12 months through January. In contrast, private payrolls rose almost 2.1 million in the same period. The best that can be said about the trend in government employment is that public agencies shed fewer jobs in the past year than they did in 2010 or 2011.

Authors

Gary Burtless

Image Source: © Lucas Jackson / Reuters

Labor Market Keeps Improving: Unemployment Uptick Normal, Reflects the Dynamics of Unemployment Inertia

Regis Barnichon — Fri, 01 Feb 2013 14:28:00 -0500

The unemployment numbers for January were in line with last month's forecast, and the contour of the forecast remains unchanged. The slight uptick only reflects the inertial dynamics of unemployment and is likely an aftermath of Hurricane Sandy. With a slow but steady improvement in hiring, I project a slow but steady improvement in the labor market and an unemployment rate of 7.4% in September 2013.

This post discusses my monthly update of the Barnichon-Nekarda model. For an introduction to the basic concepts used in this post, read my introductory post (Full details are available here.)

As expected (see last month forecast in Table 1 and my post here), the unemployment rate ticked up to 7.9% in January. This slight increase reflects the dynamics of unemployment and is no cause for worry. The intuition for this uptick is easily understood by looking at the behavior of the “steady-state” unemployment rate. The steady-state unemployment rate, the rate of unemployment implied by the underlying labor force flows—the blue line in figure 5—hovered around 8 percent in the past couple months and was above the actual unemployment rate. This is mostly because workers' job finding rates (i.e, hiring) declined sharply in November (probably reflecting the effect of Hurricane Sandy) and because worker's separation rate (layoffs) increased sharply in November (probably also related to Sandy). Our research shows that the actual unemployment rate converges toward the steady state unemployment rate, and this convergence process generates some inertia in the behavior of unemployment. At December's level of 7.8 percent (Table 1), the unemployment rate was slightly above its steady-state rate, which pushed up the unemployment rate up in January. In other words, the January uptick is simply a late effect of Hurricane Sandy.

However, the current value of steady-state unemployment rate is now significantly lower (at 7.4%), and the "steady-state convergence dynamic" is now pushing the unemployment rate down. With a projected steady-state unemployment rate at 7.2 percent in September 2013, I project the unemployment rate to slowly decrease over the coming months and to reach 7.4 percent in September.

More precisely, the model propagates forward its best estimate for how the flows between employment, unemployment and out-of-the labor force will evolve over time, and constructs the implications for the unemployment rate. In January, job openings have increased, and new claims for unemployment insurance continued their decline. Consequently, the model now projects sizable improvements in workers’ job finding rates (figure 3) over the next 6 months, and the outlook for the job separation rate (or layoffs) is improving (albeit, very slowly, figure 2). As a result, the steady-state unemployment rate is now projected to decline to 7.2% by September 2013, bringing the unemployment rate down with it.

To read more about the underlying model and the evidence that it outperforms other unemployment rate forecasts, see Barnichon and Nekarda (2012).

Authors

Regis Barnichon

Image Source: © Lucas Jackson / Reuters

The Psychological Toll and Economic Fallout of High Unemployment

Gary Burtless — Tue, 08 Jan 2013 10:39:00 -0500

The job market continued to improve last year, but the pace of improvement was agonizingly slow. The unemployment rate edged down to 7.8%, a drop of 0.7% compared with the end of the previous year. Payroll employment grew 153,000 a month. Payroll gains in 2010, 2011, and 2012 have now offset a little more than half the loss in payroll jobs we suffered in 2008 and 2009. The net improvement is less than these numbers suggest, because we need employment to increase about 90,000 every month in order to accommodate the growth of the working-age population.

Two features of the recovery have inflicted harsh burdens on the nation’s unemployed. First, an exceptionally high proportion of unemployment has been long-term, that is, has lasted six months or longer. Second, since reaching a peak of 10% in October 2009, unemployment has fallen at a glacially slow pace.

Unemployment and the burden it imposes are very unequally distributed across the population. Young workers, employees in cyclically sensitive industries like construction and manufacturing, and members of historically disadvantaged minorities are more likely to suffer layoffs than other workers. The labor income of most unemployed workers falls to zero, and only part of it is replaced by unemployment compensation and other social benefits. Workers who lose their jobs after short spells of employment or who become unemployed after leaving school or rejoining the labor force seldom qualify for any unemployment benefits at all.

In many respects, U.S. public policy was unusually generous to the unemployed during the recent downturn. Compared with earlier post-war recessions, laid off Americans were eligible to receive unemployment compensation for an exceptionally long time—up to 99 weeks in some states with high unemployment rates. Even with these improvements, however, unemployment benefits remain less generous than they are in other rich industrialized countries. Laid off workers, especially those who suffer long spells of joblessness, receive less income protection in the United States than they do in most of Western Europe, for example.

The psychological toll of unemployment—and of long-term unemployment in particular—is known to be high. Surveys in many industrialized countries show that being unemployed reduces happiness. This finding is hardly surprising. What is more interesting is that the drop in happiness that accompanies unemployment is greater than the change in happiness that can be explained by the drop in income that accompanies job loss. It is widely known that, in a cross-section of people in the same country, differences in income help account for differences in individual happiness. Not surprisingly, people with higher income tend to be happier than people who have less income. Even accounting for the effects of income differences, however, people who describe themselves as unemployed are considerably less happy than the employed.

The gap in happiness between the unemployed and employed cannot be explained by differences in happiness that existed before job loss occurs. A number of longitudinal studies demonstrate that a sizeable drop in happiness accompanies or follows the involuntary loss of a job.

Both longitudinal and cross-section evidence suggests that the drop in individual happiness associated with unemployment is smaller in countries and regions where the average unemployment rate is high. In other words, massive and persistently high local unemployment seems to take some of the sting out of being unemployed. In a low-unemployment environment, the unemployed may feel more isolated in their suffering. If unemployment is more widespread, more peers may share an unemployed worker’s pain, lessening the psychological burden of living without paid work. For some of the unemployed, one side effect of the reduced psychological burden is that they devote less effort to finding another job. When reduced job-search effort results in slower re-employment, high joblessness can become to some degree self-perpetuating.

Thus, massive and persistent unemployment, by modestly reducing the psychological toll of joblessness, may indirectly create an environment in which long-term unemployment spells become more palatable and common. At the moment, U.S. unemployment is abnormally high as a result of fallout from a financial crisis and the massive loss of housing wealth. There is too little demand for goods and services produced in the United States to employ all the adults willing to work at the going wage. If high unemployment persists, the search behavior of the unemployed may change and make it more difficult to attain the full-employment unemployment rate we enjoyed in the middle of the last decade.

Sources

Andrew E. Clark (2003), “Unemployment as a Social Norm: Psychological Evidence from Panel Data,” Journal of Labor Economics 21(2) (April): 323-351.

Ed Diener and Martin E.P. Seligman (2004), “Beyond Money: Toward an Economy of Well-Being.” Psychological Science in the Public Interest 5: 1–31.

Rafael Di Tella, Robert J. MacCulloch and Andrew J. Oswald (2001), “Preferences over Inflation and Unemployment: Evidence from Surveys of Happiness,” American Economic Review 91(1) (March): 335-341 .

Carol Graham (2008), “The Economics of Happiness,” The New Palgrave Dictionary of Economics 2^nd Edition, Steven Durlauf and Larry Blume (eds.) (Hampshire: Palgrave MacMillan).

Liliana Winkelmann and Rainer Winkelmann (1998), “Why Are the Unemployed So Unhappy? Evidence from Panel Data,” Economica 65(257) (February): 1-15.

Authors

Gary Burtless

Publication: Real Clear Markets

Image Source: © David McNew / Reuters

Slow but Steady: Job Market Improves in December

Gary Burtless — Fri, 04 Jan 2013 11:38:00 -0500

Employers added 155,000 workers to their payrolls in December, close to the average monthly gain we have seen over the past two years. Workforce growth requires an added 90,000 to 100,000 jobs a month to keep the unemployment rate from rising. Economic growth has been strong enough so we have comfortably–but not wildly–exceeded this benchmark for the past three years. Although the unemployment rate has remained roughly unchanged over the past four months, it has fallen 0.7% (reaching 7.8%) during the past year. If job gains continue at this rate, we should expect to see slow but steady progress toward full employment. At the current pace, however, full employment will not be achieved until the end of 2016.

The year-end job numbers shed some light on the sources of employment growth during the past year. Education and health services saw another year of robust growth. Over the past year private employers in these industries added an average of 38,000 workers to payrolls each month. Job gains in education and health accounted for one-quarter of the total rise in employment over the past year. For purposes of comparison, at the end of the last economic recovery in 2007, private employment in education and health accounted for only 13% of total employment.

The growth of payroll jobs in professional and business services was even faster, accounting for 26% of all job gains in 2012. Since payroll employment began to grow in March 2010, professional and business service employment growth has accounted for nearly a third of total job gains. In comparison, the sector accounted for just 13% of total employment at the end of the last economic expansion.

Wholesale and retail trade saw payrolls rose by an average of 22,000 a month in 2012, approximately the same rate of increase we saw in the first two years of the recovery. The proportionate rise in employment in these sectors has matched the rate of overall employment growth. Over the past year manufacturing payrolls have also grown in line with the growth of total employment. Compared with other industries, however, manufacturing sustained much bigger job losses in the recession. As result, manufacturing now accounts for a significantly smaller share of all jobs – 8.9% of total employment in December 2012 compared with 10.0% at the end of 2007.

The recent recovery has been much weaker in other industries, most notably construction and government. The construction industry eked out small payroll gains over the past year, adding about 2,000 jobs per month. Between December 2006 and December 2009, construction employment fell more than 2 million, or about one-quarter. In the first year of economic recovery, construction employment continued to fall, and it has rebounded very little since that time. Federal stimulus spending on public infrastructure has played a deplorably small role, if any, in offsetting the massive slump in private demand for new construction.

The drop in government employment has itself played a major role in slowing the rebound of employment. The best that can be said about 2012 is that the drop in public payrolls slowed. In 2010 and 2011, state, local, and federal payrolls shrank more than 20,000 a month. In 2012 they only fell 5,700 a month. State and local governments have seen an improvement in tax collections, but a shift in political philosophy in state capitals has worsened the outlook for public-sector employment growth. The steady growth in labor demand in the private sector has fortunately been strong enough to offset the public sector’s shrinking appetite for new workers.

Authors

Gary Burtless

Image Source: © Rebecca Cook / Reuters

Steady Unemployment Rate Masks Encouraging Improvements in the Labor Market

Regis Barnichon — Fri, 04 Jan 2013 13:40:00 -0500

The unemployment rate in December was unchanged from November at 7.8 percent, suggesting little effect of hurricane Sandy on the labor market. That conclusion is premature however. A look at the flows behind the unemployment rate shows that the unemployment rate held steady because two forces compensated each other. Hurricane Sandy led many people to leave the labor force in November, which pushed down the unemployment rate at the time. In December, that phenomenon reverted, which should have pushed up the unemployment rate. However, more people found jobs in December, which pushed the unemployment rate down, so that overall, the unemployment rate was unchanged. With the aftermaths of Sandy now likely over, I project a slow but steady improvement in the labor market and an unemployment rate of 7.7% in June 2013.

This post discusses my monthly update of the Barnichon-Nekarda model. For an introduction to the basic concepts used in this post, read my introductory post (Full details are available here.)

The unemployment rate held steady at 7.8% between December and November, whose rate was revised up from 7.7 percent. Digging into the underlying flows—shown in figures 2 through 4 (thick lines)—the unchanged unemployment level reflects the acting of two compensating forces. In November, many unemployed people unexpectedly left the labor force (U-N transitions, figure 3) —probably because of hurricane Sandy (as unemployed may have had to postpone job search)—, but that phenomenon reverted in December. Ceteris paribus, this should have increased the unemployment rate. However, at the same time, job creation improved, and the job finding rate (U-E) ticked up, which pushed the unemployment rate down. These two forces compensated each other, and the unemployment rate was unchanged.

Going forward, I anticipate the improvements in the labor market to continue and the unemployment rate to decline (albeit slowly) and reach 7.7 by June 2013. The intuition for this forecast is easily understood by looking at the projected behavior of the “steady-state” unemployment rate. The steady-state unemployment rate, the rate of unemployment implied by the underlying labor force flows—the blue line in figure 5—is projected to decrease sizably over the next 6 months. Our research shows that the actual unemployment rate converges toward this steady state. At the current level of 7.9 percent, the unemployment rate is slightly above its projected steady-state rate. Thus, I anticipate the unemployment rate to increase to 7.9% next month. However, unlike in November, the model now sees improvements on the hiring and layoff fronts, and the steady-state rate is now projected to decline sizably over the next 6 months. Thus, past a temporary uptick, I anticipate the unemployment rate to decline steadily in the near future.

More precisely, the model propagates forward its best estimate for how the flows between employment, unemployment and out-of-the labor force will evolve over time, and constructs the implications for the unemployment rate. In December, job openings have increased, and new claims for unemployment insurance reverted their large November spike (again, likely related to Sandy). Consequently, the model now projects sizable improvements in workers’ job finding rates (figure 3) over the next 6 months, and the outlook for the job separation rate (or layoffs) is considerably less bleak than in November (figure 2). As a result, the steady-state unemployment rate is now projected to decline to 7.3% by June 2013, bringing the unemployment rate down with it.

To read more about the underlying model and the evidence that it outperforms other unemployment rate forecasts, see Barnichon and Nekarda (2012).

Authors

Regis Barnichon

Image Source: © Rebecca Cook / Reuters

Slow Recovery in the Job Market

Gary Burtless — Wed, 26 Dec 2012 08:23:00 -0500

Employment continued to improve modestly, unemployment edged down, and wage gains were approximately equal to price inflation in 2012. By the end of the year the recovery from the deep recession in 2008-2009 will be 3½ years old. The health of the job market, like that of the broader economy, is improving at a steady but comparatively slow pace. Jobless workers have seen improvements in their chances of finding a job, but wage and benefit improvements have lagged behind gains in worker productivity.

As was the case in 2011 private employers added payroll jobs at a fast enough clip to reduce the ranks of the unemployed. Part of the employment gain in the private sector was offset by a small drop in government payrolls. Slightly more than 90,000 new jobs are needed every month to keep up with the growth of the working-age population. In the 12 months ending in November 2012 private employers added about 161,000 jobs a month to their payrolls. This is similar to the pace of private-sector job gains in 2011. Small job losses in the public sector offset some of these gains. Fortunately, however, government employment fell more slowly in 2012 than in 2011. Thus, the overall rate of gain in payroll employment was a bit faster in 2012 than in 2011.

On average, total public and private payrolls increased 157,000 a month, which was fast enough to reduce the unemployment rate over the year. Indeed, the unemployment rate dropped 1.0 percentage points, falling from 8.7% to 7.7%, in the twelve months after November 2011. Since reaching a high point of 10.0% in October 2009, the unemployment rate has fallen nearly a quarter. Although the pace of the recovery has been slow, the unemployment rate has declined steadily. The number of adults who report holding a job increased faster than the number of payroll jobs reported by employers. Whereas payrolls increased a little less than 160,000 a month, the number of adults who report being employed increased about 220,000 a month in the twelve months through November 2012. Whichever estimate of job gain is accepted as accurate, it is clear that employment is expanding fast enough to reduce the unemployment rate, though slowly.

The labor force participation rate – that is, the percentage of the adult population that either holds a job or is looking for work – fell 0.4 percentage points to 63.6% in the twelve months through November 2012. The November participation rate has now fallen for six years in a row. Between November 2006 and November 2012 the adult participation rate fell 2.7 percentage points.

The continued decline of the participation rate, even in the 3½ years of economic recovery, is an indicator of a continued shortage of job vacancies. Some jobless workers, discouraged by their poor prospects of finding a job, simply drop out of the labor force and are no longer classified as unemployed. Other potential job seekers fail to enter the workforce, though they would have done so in a healthier labor market. The continued weakness of the job market certainly helps explain some of the drop in the participation rate.

It turns out, however, that about half of the drop in the participation rate since November 2006 can be traced to the graying of the population. Adults between 25 and 44 have the highest labor force participation rates, and they are a shrinking percentage of the adult population. People older than 55 have much lower participation rates, and they represent a growing fraction of the population. Thus, even if the economy had been near full employment in 2012 we would expect the adult participation rate to be about 1.3 percentage points lower than it was in 2006.

The current labor market slump has seen record levels of long term unemployment. In November 2012 about 4 out of 10 of the unemployed had been jobless for six months or longer. The median duration of an unemployment spell was 19 weeks. The median unemployment spell has shrunk over the past couple of years, but it remains high by historical standards. In 2010 and 2011 almost 3 percent of the total U.S. workforce was unemployed longer than a year, a historically high long-term unemployment rate. For purposes of comparison, the rate in 2010 and 2011 was more than twice as high as the peak long-term unemployment rate in the 1981-1982 recession, which was the nation’s worst post-war slump before the 2008-2009 downturn.

There are good reasons to worry about long-term unemployment. In the short run, the main focus of concern is the unemployed themselves. The penalties imposed by a recession are very unequal, and the long-term unemployed suffer the heaviest penalties. Unemployment benefits provide very incomplete compensation for the income losses experienced by the long-term unemployed. Economists also worry about the longer term consequences for workers who suffer long periods of idleness. Some of the unemployed eventually exit the workforce, retiring long before their work capacity and willingness to work end. Others find employment, but in positions that are not a good match for their talents and experience. These losses have potential consequences for the broader economy. When workers prematurely exit the workforce or become resigned to jobs far below their capacity, potential output can shrink.

An equally worrying prospect is that the long-term unemployed eventually become invisible to critical decision makers in the economy. This can have undesirable effects for wage determination and inflation. At high levels, unemployment puts a check on wage inflation. Workers become cautious in their wage demands, and employers become more reluctant to grant pay increases. According to an influential theory of economy-wide wage setting, if unemployment rises above a critical threshold, known as the “non-accelerating inflation rate of unemployment” or NAIRU, annual wage increases start to shrink and labor cost pressures on prices begin to decline. By permitting the unemployment rate to rise above the NAIRU, policymakers can reduce inflation.

A critical issue is whether the long-term unemployed have the same weight as the short-term unemployed in restraining inflationary pressures in the economy. The two kinds of unemployed would have the same weight if employers regarded the short-term and long-term unemployed as being equally available to fill any job vacancies. If instead employers do not regard the long-term unemployed as adequate substitutes for newly laid off workers, it is easy to imagine that a 1-percent increase in the long-term unemployment rate would have a smaller restraining influence on wages and prices than an equivalent increase in the overall unemployment rate that is caused solely by an jump in the number of short-term unemployed.

There is also a risk that the long-term unemployed will become invisible in the economic policymaking process. If each American worker faced identical odds of losing a job, and each job loser then suffered an identical spell of unemployment, most workers would probably have keen interest in minimizing both the risk of unemployment and the duration of unemployment spells. In fact, the risk of losing a job varies tremendously across workers, and unemployment spells are highly unequal across workers who become unemployed. The risk of losing one’s job is a matter of small concern to many workers, and the severe problems facing the long-term unemployed are an even smaller concern.

The percentage of employed workers who became unemployed in a typical month averaged about 1.2 percent in 2007, the final year of the last economic expansion. Between October 2008 and September 2009 the monthly probability of entry into unemployment surged more than half, rising to 1.8 percent. During the worst phases of the recent slump most workers were acutely aware of the increased risk of job loss. This gave policymakers a strong base of support for policies to halt the economic slide and provide aid to the workers harmed by it. After the economy began to grow in early 2010 the percentage of workers who entered unemployment in a given month began to fall. By early 2012 the entry rate into unemployment was about one-quarter below the peak rate attained in the worst months of the downturn. Though job loss rates remain a bit higher than they were at end of the last expansion, they are well below their recession peaks. Helping the long-term unemployed may seem like a less urgent concern when an employee’s personal risk of entering into long-term unemployment is low. The long-term unemployed and their problems have a shrinking weight in determining voters’ and politicians’ policy interests.

In sum, the job market continued to improve in 2012, though at a painfully slow pace. Workers chances of losing their job are not much different than was the case near the end of the last economic expansion. The number of job vacancies has increased since the low point of the business cycle, but jobless workers continue to find it hard to land a new job. The number of jobless workers in unemployment spells lasting longer than a year remains high by historical standards. Unfortunately, the extremely large losses in well-being suffered by the long-term unemployed seem to play a shrinking role in economic policymaking. Concern over the deficit, rather than the long-suffering unemployed, has become the central focus of policy.

Authors

Gary Burtless

Labor Market Still Fragile, Unemployment Likely to Tick Back Up Next Month

Regis Barnichon — Fri, 07 Dec 2012 13:34:00 -0500

The November employment report showed unexpected declines in both the unemployment rate and in the labor force participation. A stock-flow analysis of the latest report shows that the labor market continues to show many signs of weakness, with no improvements in workers’ job finding rates and a stubbornly elevated rate of job separation. In fact, the unemployment rate mainly ticked down because an unexpectedly high, but likely transitory, number of unemployed left the labor force. Although this month’s forecast should be taken with caution given the possible effect of Hurricane Sandy on the labor market, I now forecast the unemployment rate to remain elevated and tick back up to 7.9% next month, with no improvement over the next six months.

This post discusses my monthly update of the Barnichon-Nekarda model. For an introduction to the basic concepts used in this post, read my introductory post (Full details are available here.)

Both the unemployment rate and labor force participation rate declined by 0.2 percentage point between October and November. Digging into the underlying flows—shown in figures 2 through 4 (thick lines)—the improvement on the unemployment front reflects mainly an unexpected increase in the rate at which unemployed people leave the labor force (U-N transitions, figure 3). However, job creation remains very weak, and the job finding rate (U-E) unexpectedly ticked down. These unexpected movements are probably consequences of Hurricane Sandy: in affected areas, firms may have had to delay hiring, and unemployed individuals may have had to postpone any job search.

The “steady-state” unemployment rate, the rate of unemployment implied by the underlying labor force flows—the blue line in figure 5—is projected to increase and hover around 8 percent over the next 6 months. Our research shows that the actual unemployment rate converges toward this steady state. At the current level of 7.7 percent, the unemployment rate is below its projected steady-state rate. Thus, I anticipate the unemployment rate to slowly increase over the coming months.

More precisely, the model propagates forward its best estimate for how the flows between employment, unemployment and out-of-the labor force will evolve over time, and constructs the implications for the unemployment rate. However, given the possible effect of Hurricane Sandy on the labor market, the model’s reading of today’s report should be taken with caution. The model is not equipped to capture the effect of a onetime event such as Hurricane Sandy.

With that caveat in mind, the model sees the decline in the job finding rate and the increase in the U-N transition rate as transitory. However, job openings have declined almost continuously since last June (not shown), and the model foresees weaker and weaker recoveries in the job finding rate with each new employment report. In fact, the projection for the job finding rate is now virtually flat over the next six months. This pessimistic projection is all the more striking when one considers that the job finding rate is significantly below its pre-recession level (figure 3).

To read more about the underlying model and the evidence that it outperforms other unemployment rate forecasts, see Barnichon and Nekarda (2012).

Downloads

Data for the December jobs forecast

Authors

Regis Barnichon

Another Heartening Report on Job Market Progress

Gary Burtless — Fri, 02 Nov 2012 11:59:00 -0400

The headline numbers in October’s employment report show continued recovery from the nation’s worst post-war slump. The pace of recovery remains faster than it was earlier in the year. Both the employer survey and household survey uncovered fresh evidence it is getting easier to land a job. Nonfarm payrolls increased 171,000 in October, with all the improvement coming from job gains in the private sector. The household survey showed an even bigger leap in employment. With seasonal adjustment, the number of adults who report holding a job increased 410,000 in October compared with September. The unemployment rate edged up 0.1% because the number of Americans in the labor force rose. The active workforce increased 578,000 in October; it has climbed almost 1 million in the past two months.

October’s good news on the employment front was reinforced by revisions in the payroll employment statistics for August and September. The updated payroll numbers added 84,000 to previously reported job gains in late summer and early fall. Since January of this year payroll employment has increased an average of 144,000 a month, with virtually all the improvement occurring in the private sector. During the same months, adult employment reported in the household survey increased by an average of 194,000 a month. The gains in both employer payrolls and adult employment are fast enough to push down the unemployment rate. Indeed, the jobless rate has fallen 0.4 percentage points since January and by a full percentage point over the past 12 months. All the drop in unemployment since January has been the result of increases in adult employment; none of it has been caused by a decline in labor force participation.

If the job market continues to improve we should expect to see an increase in labor force participation, especially among young adults. The adult labor force participation rate has dropped a bit more than 2 percentage points since the end of the last economic expansion. Part of the drop can be explained by the aging of the adult population. As the baby boom generation has begun to enter its retirement years, the fraction of the adult population in the workforce has shrunk. About half the drop in the participation rate since 2007 is due to an aging population. The remainder, however, is the result of a depressed job market. Workers who think they have bleak prospects of finding a job have dropped out of the workforce. As the job market mends, we should expect to see a gradual rise in the participation rate. We have seen labor force growth in the past couple of months, but there is still a long way to go.

Payroll gains in October were broadly distributed across goods-producing and service-producing industries. Employment edged up slightly in manufacturing, partly offsetting job losses in the past couple of months. Construction also saw job gains, though total employment in that industry remains more than 25% lower than it was before the onset of the recession. Service industries have fared much better than goods-producing industries in recent months. Temporary help firms also registered job gains in October, more than offsetting the job loss they experienced in September.

Government agencies bucked the general pattern of job gains in October and saw a small loss of employment. However, revised estimates of public-sector payrolls in August and September mean that the government has added about 83,000 employees since June. This represents a sharp reversal of the pattern during most of the recovery. Government payrolls shrank rather than expanded after the economy began growing again in late 2009. It now seems possible that the long trend toward government job losses may have ceased.

Authors

Gary Burtless

Tepid Labor Market Recovery Continues; Unemployment Rate Likely to be Stuck at 7.9 Percent

Regis Barnichon — Fri, 02 Nov 2012 12:08:00 -0400

The November employment report showed small upticks in both the unemployment rate and the labor force participation rate. These numbers were in line with last month’s forecast and confirmed my assessment of recent developments in the labor market: the labor market is slowly improving, driven mostly by a slow increase in hiring. However, the separation rate is still significantly above its pre-recession level, and I do not expect any improvement on this front. Given the slow improvement in hiring and the elevated rate of job separation, I forecast the unemployment rate to remain close to its current level over the next six months.

This post discusses my monthly update of the Barnichon-Nekarda model. For an introduction to the basic concepts used in this post, read my introductory post. (Full details are available here.)

The unemployment rate in October was 7.9 percent, an increase of 0.1 percentage point from September. As you can see in Table 1, this increase was very close (within rounding error) of my previous forecast. Consequently, my assessment of the labor market is little changed from last month.

Digging into the underlying flows—shown in figures 2 through 4 (thick lines)—the slight uptick reflects the labor market partially reversing some of the September gains. This is exactly what the model expected last month: the surprisingly low unemployment rate in September was mostly due to an unexpectedly strong (but transitory) increase in the job finding rate, and an unexpectedly strong (and equally transitory) decrease in job separations. Both the job finding rate and the job separation rate partially reversed those gains, and the unemployment is now a little higher. The slight uptick in the labor force participation was more of a surprise. As shown in Figure 4, more persons who had previously not been in the labor force entered it—but did not immediately find jobs—which pushed up the labor force participation rate.

The “steady-state” unemployment rate, the rate of unemployment implied by the underlying labor force flows—the blue line in figure 5—is projected to hold at just under 8 percent through the end of the year. Our research shows that the actual unemployment rate converges toward this steady state. At the current level of 7.9 percent, the unemployment rate is essentially at its projected steady-state rate. Thus, I anticipate the unemployment rate to stay roughly constant over the coming months.

More precisely, the model propagates forward its best estimate for how the flows between employment, unemployment and out-of-the labor force will evolve over time, and constructs the implications for the unemployment rate. The model’s reading of today’s report is the same as last month: As shown in figures 2 and 3, the model continues to anticipate a slow recovery in the labor market coming from a slow increase in workers’ job finding. However, the model continues to see an elevated rate of job separation over the forecast horizon (Figure 3). Although the separation rate is significantly above its pre-recession level, the model does not expect any improvement on this front, and this prevents the unemployment rate from declining.

The model expects the strong increase in the rate of labor force entry to be transitory, so that my projection for the labor force participation rate is very similar to last month: the labor force participation rate is projected to rise slowly over the next six months, driven by the slowly increasing job finding rate.

To read more about the underlying model and the evidence that it outperforms other unemployment rate forecasts, see Barnichon and Nekarda (2012).

Authors

Regis Barnichon

An Introduction to a New Approach to Forecasting Unemployment

Regis Barnichon — Fri, 02 Nov 2012 12:53:00 -0400

Editor's note: unemployment rate forecasts will be published monthly on the Brookings Up Front Blog. Forecasts have been published monthly starting in October 2012. Read past editions: 10/12, 11/12, 12/12, 1/13, 2/13.

Our method is based on a very informative but under-analyzed part of the monthly employment report: the worker flows taking place in the labor market.

The U.S. labor market is dynamic: Millions of people move between Employment (E), Unemployment (U), and Not-in-the labor force (N). Since there are three different labor market states, the labor market is characterized by six flows: from unemployment to employment (U to E) when an unemployed finds a job, from employment to unemployment (E to U) when a worker is laid-off, from unemployment to out-of-the-labor-force to unemployment (U to N) when an unemployed leaves the labor force, and so on.

The rate at which people are moving into and out of unemployment tells us a great deal about the current state of the labor market and its likely future developments.

A simple analogy helps explain the reason why. The unemployment rate can be thought of as the amount of water in a bathtub, a stock. Given an initial water level, the level of the water in next period is determined by the rate at which water flows into the tub from the faucet and the rate at which water flows out of the tub through the drain. When the inflow rate equals the outflow rate, the amount of water in the tub remains constant. But if the inflow rate increases, we know that the water level will be higher in the future. In other words, the inflow rate and the outflow rate provide information about the future level of water—or in this case, unemployment.

This insight forms the cornerstone of our approach. Namely, we exploit this convergence property, whereby the actual unemployment rate converges toward the rate implied by the labor force flows, also called the “steady-state unemployment rate.”

Our paper shows that our model has consistently yielded more accurate unemployment predictions in the near-term (basically over a 6-month horizon) than either professional forecasters or other econometric models.

To facilitate analysis and discussion of real-time developments in the labor market, I will publish updated forecasts from our model on the BPEA web site each month following the release of the employment report. I will also write a post discussing the forecast and our model’s reading of the latest unemployment numbers.

To read more about the underlying model and the evidence that it outperforms other unemployment rate forecasts, see Barnichon and Nekarda (2012).

Authors

Regis Barnichon

An Upbeat Household Survey and Revisions in Old Payroll Statistics Paint a Brighter Picture of the Job Market

Gary Burtless — Fri, 05 Oct 2012 11:36:00 -0400

In September 2012 the unemployment rate fell below 8% for the first time since January 2009. Though the recovery from the 2008-2009 recession has been heartbreakingly slow, the latest unemployment statistics combined with revisions in old payroll employment numbers offer a brighter picture of job market progress than we have seen in recent BLS reports.

The September employment report shows that private payrolls increased for the 31^st consecutive month, rising 104,000 compared with August. While this is a somewhat slower pace of private sector employment growth than we saw earlier in the year, a turnaround in public employment and revisions in estimated job gains in July and August significantly lifted the estimated rate of payroll gains this past summer. Initial estimates showed that government employment fell 21,000 in July and 7,000 in August. The latest BLS revisions suggest government payrolls increased 18,000 in July and 45,000 in August. In addition, preliminary estimates for September show public payrolls increased 10,000 in September.

This is the first time since March–May 2010, when the Census Bureau was adding temporary workers for the decennial census, that we have had three successive months in which government employment increased. Between May 2010 and July 2012, the drop in government payrolls offset more than a quarter of the job gains in the private sector. Private payroll employment rose more than 3.9 million, while government employment fell almost 1.1 million. The latest BLS statistics show that government employment is now adding to rather than subtracting from employment growth. BLS revisions to the preliminary July and August payroll numbers added 86,000 to estimated job gains this past summer. While the overall pace of job growth was not spectacular, it was clearly fast enough to shrink the unemployment rate.

The employment numbers from the latest household survey are even more heartening. The number of employed adults increased 873,000 while the number of adults saying they are either employed or looking for work increased 418,000. The number of unemployed workers thus fell 456,000, and the unemployment rate fell 0.3 percentage points to 7.8%. The number of unemployed workers is now the lowest it has been since January 2009.

The unemployment rate would certainly be higher if workers’ prospects of finding jobs were brighter. Since the end of the last economic expansion in late 2007 the labor force participation rate has dropped 2.3 percentage points. Some of the decline is due to factors other than a lousy job market, however. I estimate that about half of the decline can be traced to an aging population. As the baby boom gets older, a larger percentage of adults is in age groups with low labor force participation rates. Still, we would expect that in a healthy job market the number of labor force participants would be 2½ million to 3 million larger than it was in September 2012. While the September employment report was more encouraging than the ones we have seen in recent months, the job market is still a long way from rosy good health.

Authors

Gary Burtless