A couple of days ago, the Sandwichman characterized the employment-as-a-lagging-indicator meme as a prescription for doing nothing. Yesterday, over on Macroblog, David Altig contemplated, "Economists got it wrong, but why?" concluding, "I've yet to see the evidence that progress requires moving beyond the intellectual boundaries in which most economists already live." That comment sent the S-man down memory lane to a WSJ debate on job market slack Max Sawicky and Sandwichman had with David Altig back in the boom times of August, 2005.
Max and I were of the opinion that the job market was then slack in spite of a nominal 5% unemployment rate. David Altig leaned toward the interpretation that changes in labor force participation were being driven by demographic trends and the informed choice of participants and non-participants. In hindsight, I wish we had followed up on the demographic clue. Decomposing the employment-population ratio by age groups produces the following arresting picture:
While the drop-off since September 2008 has been steep, the decline began in December 2006, three months before unemployment bottomed out for 16-24 year olds. Perhaps more auspicious, the "peak" employment-population ratio for 16-24 year olds during the last recovery barely climbed above it's trough following the 2001 recession. As they say, the youth of today is the future -- or the canary in the coal mine. The above chart is "evidence that progress requires moving beyond the intellectual boundaries in which most economists already live" whether David Altig sees it that way or not.