Job Growth–Barely Keeping Pace with Population

Last Friday’s employment report revealed little sign of a lift off of the employment to population ratio.  It’s the same as it was in May of last year—58.6 percent. Employment grew by about 1 percent (or 1.6 million) over the past year. But the working age population also grew at about 1 percent (or 2.4 million), so the ratio of employment to population stayed the same. For the policy book I edited with Lee Ohanian and Ian Wright last year we put the employment to population ratio on the cover. Here’s the sad extrapolation.

The main reason why this measure of employment has not shown improvement while the unemployment rate has declined over the past year is that the labor force participation rate has declined (from 63.8 to 63.4). Some argue that the declining labor force participation is what one would expect from the demographic changes as the baby boom generation retires.  But the labor force dropout rate is much larger than that and must have to do with the prolonged slow recovery.

A simple way to show this is to look at what BLS was projecting—using demographic factors—for labor force participation before the recession and the slow recovery.  The fascinating chart below is from a recent paper Chris Erceg and Andrew Levin. It shows  that the decline in labor force participation rate is far greater than the demographics would suggest.

Finally, here is an updated version of the chart I have used throughout the recovery  to show changes in the employment-population ratio compared with the 1980s recovery.

About John B. Taylor 117 Articles

Affiliation: Stanford University

John B. Taylor is the Mary and Robert Raymond Professor of Economics at Stanford University and the Bowen H. and Janice Arthur McCoy Senior Fellow at the Hoover Institution. He formerly served as the director of the Stanford Institute for Economic Policy Research, where he is now a senior fellow, and he was founding director of Stanford's Introductory Economics Center.

Taylor’s academic fields of expertise are macroeconomics, monetary economics, and international economics. He is known for his research on the foundations of modern monetary theory and policy, which has been applied by central banks and financial market analysts around the world. He has an active interest in public policy. Taylor is currently a member of the California Governor's Council of Economic Advisors, where he also previously served from 1996 to 1998. In the past, he served as senior economist on the President's Council of Economic Advisers from 1976 to 1977, as a member of the President's Council of Economic Advisers from 1989 to 1991. He was also a member of the Congressional Budget Office's Panel of Economic Advisers from 1995 to 2001.

For four years from 2001 to 2005, Taylor served as Under Secretary of Treasury for International Affairs where he was responsible for U.S. policies in international finance, which includes currency markets, trade in financial services, foreign investment, international debt and development, and oversight of the International Monetary Fund and the World Bank. He was also responsible for coordinating financial policy with the G-7 countries, was chair of the working party on international macroeconomics at the OECD, and was a member of the Board of the Overseas Private Investment Corporation. His book Global Financial Warriors: The Untold Story of International Finance in the Post-9/11 World chronicles his years as head of the international division at Treasury.

Taylor was awarded the Alexander Hamilton Award for his overall leadership in international finance at the U.S. Treasury. He was also awarded the Treasury Distinguished Service Award for designing and implementing the currency reforms in Iraq, and the Medal of the Republic of Uruguay for his work in resolving the 2002 financial crisis. In 2005, he was awarded the George P. Shultz Distinguished Public Service Award. Taylor has also won many teaching awards; he was awarded the Hoagland Prize for excellence in undergraduate teaching and the Rhodes Prize for his high teaching ratings in Stanford's introductory economics course. He also received a Guggenheim Fellowship for his research, and he is a fellow of the American Academy of Arts and Sciences and the Econometric Society; he formerly served as vice president of the American Economic Association.

Before joining the Stanford faculty in 1984, Taylor held positions as professor of economics at Princeton University and Columbia University. Taylor received a B.A. in economics summa cum laude from Princeton University in 1968 and a Ph.D. in economics from Stanford University in 1973.

Visit: John Taylor's Page, Blog

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