Exploration

The Labor Force in Context

On Friday, the Bureau of Labor Statistics (BLS) released its monthly employment report for October.  There are three banner metrics that always get the most attention from the media: the number of jobs added (171,000), the official “U3” unemployment rate (7.9%), and the broader “U6” measure of unemployment (14.6%).  Here they are, graphed:

Dissecting these estimates has become a monthly ritual in the last few years, but the reporters always hedge on just how representative these measures really are.  They talk vaguely about a lot of other factors moving behind the scenes, like demographic shifts, or the general pace of population growth, or how discouraged workers exit and reenter the labor force.  So what’s going on?

Below, I’ve put together a graph to show all of the individual components of these labor force calculations.  (Click on image to enlarge.)

I’ll describe each line, starting with the top half of the graph and working from the lowest line upwards:

  • Employment, less those working part-time for economic reasons (dotted orange line): This category, which currently includes 135 million Americans, represents all those who are fully employed.  That either means that they are working full-time, or they’re working part-time by choice.  Technically, it excludes any workers under the age of 16, and active duty military.  (Source: CE16OV – LNS12032194)
  • Employment (solid orange line): This category adds in the 8 million people who are working part-time, but would prefer to work full-time if the economy allowed.  The total number of people employed in America now stands at 143 million.  (Source: CE16OV)
  • The Labor Force (solid blue line): This category adds in the 12 million people who are not employed, but have actively sought employment in the last four weeks.  The labor force participation rate relates this number as a share of population, and currently stands at 63.8%.  (Source: CLF16OV, CIVPART)
  • Unemployment (dark purple shading): All of the people who are actively engaged in the labor force but are not employed constitute the officially unemployed.   The unemployment rate, also known as U3, is calculated by dividing the number of unemployed by the size of the labor force, and currently stands at 7.9%.  (Source: UNRATE)
  • The Labor Force, plus those marginally attached (dotted blue line): Those people who have not actively sought work in the last four weeks, but nonetheless want a job, are available for work, and have looked in the last twelve months are described as ‘marginally attached’ to the labor force.  Those who give an economic reason for not searching in the last month are additionally described as discouraged workers.  Altogether, there are 2 million people marginally attached to the labor force. (Source: LNU05026642)
  • The Broader “U6” measure of unemployment (pale purple shading): Since 1994, BLS has maintained alternative measures of labor underutilization.  The definitions of each are more or less strict than the official unemployment rate.  The broadest measure, U6, has an unwieldy but descriptive title:  total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force.  It currently stands at 14.6%.  (Source: U6RATE)
  • The Civilian Noninstitutional Population (solid grey line): At the end of 2011 there were 240 million Americans aged sixteen or older who were not in active duty military service, not incarcerated, and not committed to a medical institution.  This is the standard proxy measure for the working age population, according to BLS, but it does include senior citizens, which I find to be misleading.  (Source: USAWFPNA, imputed from annual measurements and projected into 2012)
  • The Working Age Population (dashed grey line): In order to show the aging baby boom, it is helpful to look at just subset of the civilian noninstitutional population that is under the age of 65.  In this age range, those who do not participate in the labor force include home makers and full-time students.  Although some people aged 65-and-over continue to participate in the labor force, and some people retire before age 65, the difference between the civilian noninstitutional population and the working age population is an approximation of the current number of retirees (43 million, by this calculation).  (Source: Imputed from Census data here, here, and here.)
  • The Whole Population (solid black line): There are an estimated 315 million people residing in the United States or serving overseas in the military.  (Source: POP)

By graphing each of these components separately, it becomes much easier to understand the common caveats about the unemployment rate.  You can see how the employment rate dropped more quickly than the labor force participation rate during the recession, but that both fell.  Both are now recovering, but not in perfect tandem, which helps to explain some of the volatility in the unemployment rate.  You can also see how the official unemployment rate is only a partial indicator of what people tend to think about when they consider unemployment, which is often better reflected by the broader U6 measure.

You can also see the substantial impact of the baby boomers.  Because they are now retiring, the working age population is not increasing as quickly as the whole population.  This means that even apart from economic performance, we should expect the labor force participation rate to decline.

This takes me to the bottom half of the graph.  Naturally, the unemployment metrics are used to judge the President’s handling of the economy.  This is fair, though I think most people ascribe more economic power to the President than he really has.  But nobody would hold the President accountable for demographic shifts, and so I think we should try to look at changes to the labor force after accounting for the baby boomers.  That’s why the bottom half of the graph looks at the same four employment and labor force measures as a proportion of the working age population.

Here you can clearly see how job growth has continually but slowly accelerated since the beginning of 2010.  By holding the demographics constant, it is easier to fairly compare the rates of growth under the last three Presidents.

Obviously, we have a long way to go before employment has recovered, but I, for one, find these trends encouraging.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s