Is the Job Situation Improving, Holding Steady, or Getting Worse? Yes.

by Andrew McAfee on February 1, 2013

The BLS announced January jobs data today, so using my invaluable assistant FRED I added the latest updates to three long-term data series that measure employment:

  • The employment rate (in green), which is simply 100% minus the commonly reported unemployment rate (which rose a tick to 7.9% in January 2013). Of the total population of Americans who are actively looking for work and available to take it, this is the percentage who actually have jobs.
  • The workforce participation rate (blue), or “share of the population 16 years and older working or seeking work.”
  • The employment-population ratio (red), or share of the population 16 years and older that is working.

FRED Graph

The three lines appear to tell three different stories. The employment rate has been inching steadily upward since the end of the Great Recession, while the workforce participation rate has been decreasing just about as steadily. The employment-population ratio, meanwhile, has hardly budged.

The simplest and, I believe, best explanation for what’s going on here is that the US economy is adding just enough jobs each month to keep up with population growth. This explains why the red line is flat. But since we’re not adding jobs any faster than that, the principal reason the employment rate appears to be going up is, unfortunately, that the workforce participation rate is going down.

When you go (back) to school, decide stay home with the kids, go on disability, or just give up looking for a job you essentially move from the green line to the blue one. The near-perfect symmetry of those two lines suggests strongly to me that more and more people over time are making these kinds of choices instead of heading back to work.

As technology accelerates and encroaches ever more deeply into human territory I don’t expect these trends to get any healthier, unless economic growth comes roaring back so much that companies need to expand their workforces. I certainly hope that happens, but I’m not optimistic. Are you?

 

  • http://www.facebook.com/people/Alexander-Zhdanov/1232310317 Alexander Zhdanov

    On a certain level I’m hopeful (if such can be the word here) that it *doesn’t* happen. In due time technology will outcompete humans in all areas of the labor market. The alienation of humanity from work is a good thing, but we would do well to start thinking about how our institutions ought to be changed (or replaced) ahead of time, so that the transition to post-(material) scarcity is achieved as smoothly as it possibly can be.

  • Andrew Knighton

    I spent a number of years in the administrative cost control function of a Fortune 50 company. I remember the day that we let about 500 people in Human Resources go and replaced them with an intranet solution to manage the majority of our Human Capital needs. It was challenging at first but eventually, folks came to accept and then embrace the change as a sign of empowerment and simplification. Today I can’t imagine having to go to a bank and talk to a teller to pull out cash or deposit a check. The economic opportunity cost savings associated with the improved efficiency available through the use of technology is startling. That said, I think work will remain an important component of our general well-being, regardless of whether or not we get paid for it.

  • Thomas Grasso

    It is good news for us; that many unemployed people get employed. I hope this year brings some more good news for us. Since Obama erected as a president of America there are many changes has been done. The was has been stopped, one of the big discussion he has made.
    Data security MD

  • Michael Layton

    I reshared a couple of posts from your blog in recent days, and an economist friend shared this paper; it assuaged my concerns quite a bit: http://www.kansascityfed.org/publicat/sympos/2012/el-js.pdf

    These are also interesting reads on the subject:
    http://www.nytimes.com/2013/02/03/sunday-review/raging-again-against-the-robots.html
    http://opinion.financialpost.com/2013/02/01/is-capitalism-ignoring-the-writing-on-the-wall/

    That said, the overall global trends indicate that Americans who don’t have highly specialized skills will have to adjust to downward wage pressure from international competition. There will always be work to do in this world, the difficulty will be more a matter of who does what, whether the natural “market” outcome fits our concept of fairness, and what the role of public policy will play.

  • Anonymous

    That transition can be in only two directions: forward, to socialism, or backward, to feudalism. Considering the US hysteria over socialism, I’m betting it will be backward, to feudalism.

Previous post:

Next post: