Solid jobs report today, no question. I liked the headline payroll number of 288K, along with the recent acceleration in smoothed job growth you see in the figure here. There’s still too much slack in the job market–that’s the theme of what follows–but the way to squeeze that out is with many more reports like todays.
Yet, even with faster job growth, the still-depressed labor force participation rate didn’t budget, stuck for the third month in a row at 62.8%–the last time we had such low LFPR’s was in the late 1970s.
Which begs the question, why isn’t faster job growth and lower unemployment pushing up the labor force rate?
Here are some thoughts and pictures re that important question:
–It could be that the impressive job growth cited above is from the survey of establishments while the LFPR comes from the household survey.
Meh…the payroll survey’s up 5% over the expansion, the HH survey’s up 4%; measured on a comparable basis, as here, they’re both up 5%. I don’t think this is a tale-of-two-surveys story.
–Maybe it’s demographic. Perhaps we shouldn’t expect the LFPR to respond to job growth because it’s not falling due to weak labor demand, it’s falling due to retirees aging out of the workforce.
That’s definitely part of the story but only part. First off, research into this question has found both factors—weak demand and aging demographics–to be in play, though there’s disagreement about their relative weights. My take is about half and half (about half of the decline in the labor force is driven by demographics).
One way around this is to just look at LFPRs for prime-age (25-54) workers. That series is down from around 83% before the recession to around 81% now. Prime-age LFPRs also fell about a percentage point in the 2000s, so I’m not exclusively singing the post-recession, weak-labor-demand blues. But as I’ll show in a moment, this time is different.
–It’s just the continuation of a longer term trend, so don’t pin it on the Great Recession, not-so-great recovery.
Again, meh! Check out the figures below.
Each one plots employment growth from the HH survey and the prime-age LFPRs for the first five years of an expansion, indexed to one in the first quarter of the expansion (employment is cumulative percent change; LFPR is cumulative percentage-point change). I do this exercise for the last three expansions.
Employment grew more quickly in the prior two expansions, and the LFPRs of 25-54 were fairly stable. In this recovery, job growth has been slower and the LFPR has pretty steadily declined. First blush, this looks pretty demand-side.
More careful analytics are needed but I suspect what they’ll find is that we have to work through the existing slack in the job market, writ large, before we can hope to start consistently pulling people who are currently sitting out back into the labor force.
It’s your basic excess inventory story, but with workers. And by “writ large,” I’m obviously thinking beyond the unemployment rate, to the still elevated underemployment rate (12.1%), which is itself driven by the 7.5 million involuntary part-timers.
According to BLS, the difference between the weekly hours of full-time and involuntary part-timers last month was 19.3 hours. That implies 145 million weekly hours—over three million full-time weeks—that these current employees would like to add to their labor supply. That’s just one margin of the slack that needs to be cut through if we are to get to a job market that’s taut enough to draw more workers in, raising the LFPR and the equally depressed employment rate.
So, based on today’s report, we’re certainly moving in the right direction. But we’ve got a lot more ground to cover before we’re done.
Source: BLS, my analysis