Friday, April 2, 2010

Another Incremental Improvement of a Bad Labor Market

BLS reports that the economy added just over 160 thousand news jobs during March but the reported unemployment rate remained at 9.7%. This 160 thousand plus new jobs showed up in both the payroll survey and the household survey reporting but we should also note that the labor force participation rate also inched upwards so when the employment-population ratio also inched upwards, the unemployment rate remained the same.

Our graph shows that we have had very modest improvements in the employment-population ratio for the last 3 months – from 58.2% to 58.6% - as we have also seen the labor force participation rate rise – from 64.6% to 64.9%. Note also the tremendous decline in the employment-population ratio from December 2006 to December 2009. The rise in the unemployment during this period understated the decline in the employment-population ratio as labor force participation also declined. While we are making small progress, we are very far away from a healthy labor market.


TheTrucker said...

The "participation rate" is not a good metric in that it reflects the number of family members who must work outside the home in order to provide a good life for the family unit. In my own silly opinion the only thing that matters is the unemployment rate in that it reflects the number of people wanting to secure an income yet unable to do so. If the unemployment rate falls while the participation rate falls then the economy is doing very well. If we send money to every registered voter then they don't need to work and the unemployment rate falls. That causes wages to rise and inflation to ensue. So what's the downside?

Inflation is what causes people with money to invest it. If they simply hold on to money then they lose their command over labor. Stimulus, if done properly _CAUSES_ inflation. The rich have spent the last 40 years creating the inflation boogerman. said...

Employment-to-working-age-population ratio is a superior measure to unemployment rate as it is not subject to all the arbitrary variations in the participation rate.

run75441 said...


Are you suggesting Unemployment Rate and Participation Rate can be manipulated? :) I stick with Participation Rate as I can tell two things:

- Who is in the Civilian Labor Force.
- Who is in Not In Labor Force.

Over the long term, it is difficult to hide the variations you are speaking of which appear to arise in the short term with Participation Rate as well as the Unemployment Rate. While PGL does identify a downward trend in Participation Rate since 2006, I would point out the longer term trend from 2001 and immediately after the 2001 recession when Participation Rate was 66.7%.

I assume you are referring to "Employment-Population ratio" from Table A1 of Household Data which is the measurement of those Employed as taken from the Civilian NonInstitutional Population? Maybe which statistic used is more a matter of preference. I do agree there appears to be some arbitrary variations in Participation Rate. What do you believe will happen to the Civilian Labor Force Number and the Employment-Population Ratio if a Tier 4 Unemployment Compensation extension is not passed? said...


It is not a matter of manipulation, rather it is one of arbitrariness. Who gets counted as "participating"? It is an arbitrary bureaucratically defined measure, which I think amounts to reporting to a local unemployment office within the last six months that you are searching for a job, or something along those lines. Sure, that, or whatever it actually is, is probably roughly correlated with "the participation rate," but let us face it, it is a very fuzzy and noisy number without any manipulation at all.

As it is, we may be entering a period when the participation rate number is going to cut the other way. So, we may start to see a gradual increase in the employment to working-age-population ratio, while the official unemployment rate remains high because the newly employed will be offset by formerly discouraged workers re-entering the labor force but not yet employed.

Let me point out that such a phenomenon can go on for a long time. During the mid-80s the unemployment rate remained stuck at almost exactly 7% for about three years, while the employment to population ratio steadily rose during that period.

run75441 said...


If unemployment ratio remained steady while EP increased; in effect, we have an environment where job creation is matching the ratio of Civilian Non-Institutional growth to Civilian Labor Force. Not terrible and not ideal and we are at equilibrium. Unless there is a surge in job creation, this will be the result.

If you are collecting Unemployment Compensation benefits, you are counted as a part of the Civilian Labor Force and the Unemployed. If you are not collecting Unemployment Benefits, you may be a part of the Household survey in which you report you are looking for work, are not looking for work, or have given up and have sunk to Not In Labor Force. If you are collecting "Extended Benefits," you are reporting every 2 weeks the three contacts you have made. There is no 6 months and there is little reporting otherwise unless they check on you.

The admminisration has a dilemma. If there is no Tier 5 bennies passed or no extension of Tier 4, everyone will slip into NILF and no longer be counted in Civilian Labor Force or the Unemployed. Participation Rate and Employment to Population will drop again as they will no longer be counted. Unless of course they are a part of the Household Survey and they answer in a positive fashion.

I believe I have accounted for all of those who are counted properly. Myself and Laurent Guerby have been watching this since 2001 when Particpation Rate started it's decline. The generality of the numbers and how they may be disposed of depends on policy. While I believe the BLS is one of the better statistical departments of the gov.; the generation of the results can be construed.

I am greatly interested to see what the Senate does in light of Obama's proclamation of a start in job creation. Will the Senate have a Tier 5 and save millions and placing them in the Civilian Labor force? Will the Senate just have an extension of Tier 4 and screw millions of workers who have exhauted their Tier 4 benefits? Next week will be a thrilla for many.

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