2010 Outlook In Pictures: Part 3, Employment

Last Updated Jan 11, 2010 5:52 PM EST

In spite of all our hopes, U.S. unemployment stubbornly hung on to the 10 percent level for December. Even though coverage has been thorough, it's a rich and complex area, and there are some worthy data points yet to be derived from the December report. This post ends with a comment how the employment picture points to a shrinking potential for the U.S. economy. I'll follow up with a few more in the next two days, and at the end I'll try to make sense out of the "jobless recovery" of which we have heard so many forecasts.

Pictures can be helpful for explanation. Pardon my untrained hand:

The total population these days is about 307 million people, per Census Bureau forecasts. Take out those under age 16, and not in the Army or in prison, and you have those eligible for full-time work -- the Civilian Noninstitutional Population (CNP), currently 237 million.

Now comes an important statistic: the Participation Rate, which measures proportion of the population that is working (or wants to work but can't find it).

Participation rose from the middle 1950s until the late 1990s -- thanks to more women in the workforce.

The more important question is why participation has been falling. Here's what the Bureau of Labor Statistics says, in a slide show on its web site:

The long-term increase in the female labor force largely reflects the greater frequency of paid work among mothers.

The slow long-term decline in work activity among men reflects, in part, the trend to earlier retirement.

Women now account for 47 percent of the labor force, up from 40 percent in 1975.

In a section titled, without apparent irony, "Most Mothers Work," the BLS adds:
Nearly three-quarters of all mothers are in the labor force.

Even among mothers with very young children, more than sixty percent are in the labor force.

The interaction of more women working, and more men retiring early, is a falling participation rate, illustrated in this graph from the St. Louis Fed:

The drop in participation of two percentage points, times the 153 million labor force, is about 3 million workers. Econoblogger Tyler Durden asks a "what if":

Had those 3 million still [been] in the labor force (and, of course, not employed), the number of unemployed workers would have been 18.340 million, which in turn would result in an unemployment rate of 12% [for December 2009, versus 10.0%].
Note that the participation rate (the green line) has flattened out a few times in the last 60 years, but seldom fallen very far. A falling participation rate is a pretty big deal, because the long-run growth of an economy is the product of the growth of its population, or more precisely its labor force, and the growth in its productivity.

Over the next five years or so, says the BLS in projections made in 2007, the labor force will grow more slowly than the population, as many, many baby boomers get closer to retirement.

The civilian labor force is projected to grow at an annual rate of 0.8 percent, slightly slower than the population growth rate of 0.9 percent annually... The overall participation rate is projected to decline slightly from 66.2 percent in 2006 to 65.5 percent in 2016...This, in turn, is being driven by the aging baby-boom cohort as they enter the 55-and-older age group...
That's not good news. Historically the U.S. has enhanced population growth, and with it economic growth, through welcoming immigrants, but we're not in that mindset these days.

Tomorrow, more on the process of U.S. employment.