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

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?