Employment-Population Ratio

This chart shows the civilian employment-population ratio, a statistic that eliminates some of the vagaries of the unemployment rate by just asking how many people have jobs rather than whether or not the people in question are "unemployed" per se (as opposed to being full-time students, or homemakers, etc.). As you'll see, the ratio dipped quite a bit at the beginning of the new millenium as the stock bubble burst, and then stayed substantially lower than it had been during the 1990s boom throughout Bush's much-touted recovery and now has started declining again without ever reaching the old peak or even the late-1970s peak.

Brad tells us that "the employment-to-population ratio is usually a lagging indicator--it doesn't start to decline significantly until after a recession is well under way" which doesn't sound like good news. I do see one instance in 1994-95 of an upswing in the ratio temporarily reversing just in time to give the GOP control of congress (people forget that aspect of the '94 midterms -- to some extent, it was the economy, stupid) before continuing upwards again.

Comments

Brad tells us that "the employment-to-population ratio is usually a lagging indicator--it doesn't start to decline significantly until after a recession is well under way" which doesn't sound like good news.

Actually, in this case, that would be good news. It would mean that the worst is over. If the employment-to-population ration were a leading indicator, then a decline would be bad news, because it would mean the worst is yet to come.

Posted by Mr. Noah | May 4, 2007 6:33 PM

Reminds me of "Harold and the Purple Crayon" drawing mountains.

Let's hope his arm isn't getting tired.

Posted by alphie | May 4, 2007 7:03 PM

MY, "late-1970s peak" should be "late-1980s peak".

Posted by James B. Shearer | May 4, 2007 7:07 PM

How does this correwlate with the aging population? As more of our population exceeds retirment age I would expect those numbers to decline. Ditto if we had another Baby Boom and there were lots of young kids in our society.
The numbers should exclude anyone younger than 16 and older than, say, 72.
Also, the "dip" is pretty minor and could just be a bump like others in the graph.

Finally, what's up with the sharp drop in 1983? That was when the country was coming out of a recession, why did the number fall so fast and far?

Posted by Jonf | May 4, 2007 7:10 PM

..what's up with the sharp drop in 1983? That was when the country was coming out of a recession, why did the number fall so fast and far?

That would be the Reagan Tax cut, combined with the really high interest rates, that made the "Great Leap Forward" in the economic divide, and solved wage inflation with mass unemployment.

Posted by FreeDem | May 4, 2007 7:33 PM

The employment numbers, no matter which ones you use, are going to be bad for the rest of the year. There a simply too many jobs being lost in residential construction, building products and mortgage related areas.

fair prediction I think is that if there is not some unusual dislocation in the economy or more importantly the financial markets many econ numbers will look more and more like recession as the year goes on but the GDP numbers will not flash the R signal. There is so much money being moved and made by financial means that an R is almost impossible.

The bifurcated economy is going into hyper mode now.

By the way, pay no attention to the Fed Chairman anymore. The action is at Treasury which is now fully integrated with The Street, through Paulson. The same applied with Rubin back in the Clinton days but the degree was less.

Posted by rapier | May 4, 2007 7:46 PM

Jonf and FreeDem: The employment-population ratio was low in 1983 because of the terrible 1980-82 recession. The conventional story behind that one was that the Volcker Fed sharply raised interest rates in 1980 and cut back on the growth of the money supply to bring inflation under control. That recession was a period of _declining_ employment on a massive scale. The level of employment lags the change in employment; that's just how a change is defined. After I drop a cinder block on my foot, the cinder block is on my foot. But this appears to have had little to do with either Carter or Reagan, except for the price controls which made an energy shock into a shortage.

I would still be careful about dealing with low-frequency components of participation, which is Jonf's point. There are so many demographic things going on that it's a little hard to tell what the "trend" component is. There are also long-run increases in labor force participation by women and decreases in participation by men, especially younger men, that have nothing to do with the business cycle.

This is why the employment-population ratio is interesting, but it's also worth looking at other things like the unemployment rate which is roughly where it was in 1998. Real wage growth has been where it was in 1998. Inflation is slightly worse but not much worse. GDP and productivity growth have appeared to slow a touch as labor markets have become tighter. All in all, I'd say that the current situation is pretty good but, like everybody else, I'd be concerned about downside risk in the next few quarters.

Posted by Chris | May 4, 2007 8:27 PM

A phenomenon that doesn't show up all that accurately in government statistics is the growth in what I call "semi-employment" -- i.e., corporate employees turning into "consultants" and "contractors," often at less than 40 paid hours per week and without health insurance. I've never seen a good statistical analysis of this trend, but, anecdotally, it definitely seems more prevalent in this decade than in the past.

Posted by Steve Sailer | May 4, 2007 10:22 PM

Another component of "hidden" unemployment is the rapid growth in disability. There are too many ways to game the system to make the top-line unemployment figures look good. That's why the chart above is so useful--it's stripped down and straightforward.

Posted by jlw | May 4, 2007 10:44 PM

A tight labor market is good for wages. A loose labor market brings down wages. Why do you think that big business (e.g. Wal-Mart, Microsoft, etc.) so adamantly supports the third-world invasion of the U.S.? They want to drive down American wages. Stop the invasion!

Posted by Old-School Democrat | May 4, 2007 10:56 PM

Another reason this is a more useful measure than the more common unemployment rate is the growth of the prison population, which removes a notable percentage of the younger male population from the denominator of the unemployment rate.

Posted by Steve Sailer | May 5, 2007 1:09 AM

Re: That would be the Reagan Tax cut, combined with the really high interest rates, that made the "Great Leap Forward" in the economic divide, and solved wage inflation with mass unemployment.

Huh? I may have been just 16 in 1983, but there was no explosion of unemployment in 1983. The recession (a double dip one) was in 80-81. By 83 the economy had recovered. There's a problem with this graph; it's showing anomalous data for 83 and I would like someone knowledgeable (rather than partisan and propagandistic) to try to explain it. Maybe the counting protocols changed?

Re: A phenomenon that doesn't show up all that accurately in government statistics is the growth in what I call "semi-employment" -- i.e., corporate employees turning into "consultants" and "contractors," often at less than 40 paid hours per week and without health insurance.

Contract labor is quite often worked more than 80 hours a week because it does not have to be paid overtime (though some contracting firms offer straight time for overtime to give their consultants motivation to work extra hours). Consultanst can also purchase health insurance from their contracting firm, sometimes at good rates, sometimes not. (I am speaking from experience, FYI. The only time I did not get health insurance in a consulting gig was when its term was for just two months)

Re: Another component of "hidden" unemployment is the rapid growth in disability.

Yep, but at least some people on disability are working off the books in the underground economy too. Donlt ask me for details, OK? I don't rat out friends. (By the way, what rapid growth? Like most GOP administration, the Bush Bunch has been pretty restrictive as to who gets on Social Security disability. Come on folks, we're dealing with an ideology which is severely opposed to people being supported by the public dole!)

Posted by JonF | May 5, 2007 2:16 AM

Disability is the new welfare for blue collar men. First, it's hard to work with your body doing heavy lifting past early middle age. Second, the vast influx of illegal immigrants has driven wages so far down for guys who lift stuff for a living that it's not worth keeping at it past 45 or 50. So, the fraction of blue collar white guys who go on permanent or near-permanent disability is much higher than in the past.

Posted by Steve Sailer | May 5, 2007 3:11 AM

JonF- conservatism has no true ideological restriction against people living off the public dole. It only has a restriction against poor and middle class people living off the public dole. They love putting corporations, CEO's, and private contractors on the public dole. It's a hell of a way to funnel money to your campaign contributors.

And I believe the reason you don't know about the unemployment increase was a clever little accounting trick. They started counting Military Personnel as "employed", when they had previously been left out of the equation altogether, making it appear as if things remained equal while we lost hundreds of thousands of jobs.

Posted by soullite | May 5, 2007 8:35 AM

Re: Disability is the new welfare for blue collar men. First, it's hard to work with your body doing heavy lifting past early middle age

You may be right about this, but include "women" in the statement too. My step-sister, a tool and dye maker, is having terrible back trouble nowadays. But you do have to have a legitimate medical problem to get on disability. You don't just show up at the local SocSec Admin office and tell them "I don't want to work any more, please put me on disability." In fact, it's actually quite hard to get disability approved if you're still on your feet and functional. My sister has looked into it and no dice for her, despite having four herniated disks.

Re: conservatism has no true ideological restriction against people living off the public dole. It only has a restriction against poor and middle class people living off the public dole.

Yes, I don't think I would argue with you there.

Re: And I believe the reason you don't know about the unemployment increase was a clever little accounting trick.

In regards to 1983? I am not talking just stats here. I remember that year and there was no great loss of jobs that year. That was the year I learned how to drive. I recall tooling around with my learner's permit and my dad with me, and him commenting on how congested the roads were getting again, a sure sign the economy was back on track. The country was in recovery; the terrible flood of job losses had come in 1981. Look, I am aboslutely not a Republican, or an apologist for Reagan, but I do have a strong dislike for warping history for ideologiocal reasons, even when the ideology is one I agree with. And why in the world would tax cuts lead to job losses? Ever hear of Mr. Keynes? The Reagan tax cuts were pure Keynesian stimulus (forget the "supply side" baloney) to the economy. Also, why shouldn't military personnel be counted as employed? They are not idle; they are doing a job and getting paid for it. Now as far as the graph goes I really do suspect that something odd is up with the data for 1983: maybe the definition of "population" changed so that retirees and/or children and/or immigrants (including estimates of illegal ones) were included where they hadn't been before?

Posted by JonF | May 5, 2007 10:27 AM

In regards to 1983? I am not talking just stats here. I remember that year and there was no great loss of jobs that year.

I remember 1983. What I remember was 25% local unemployment, finding out what powdered milk tasted like after my parents (both tool and die workers) went on unemployment. If you didn't notice what had happened to large sections of the country, I remember nightline or one of the news showed came out to take a look around at the mess. The unemployment doesn't look like that now, but the job's aren't anything like they were then.

Posted by Ed Marshall | May 5, 2007 7:35 PM

Our statistics on the number working is probably broken.

As others point out there are too many gray areas: day work (primarily) by illegals, legitmate consultants and contractors, and the gray economy (do you really think what is happening on Los Angeles streets is recorded business activity?

I don't believe for a moment that most of the gardeners I see in the suburbs are honestly reported by the small contractors that use them. And some of them work for years at the same job.

We also don't know the denominator - how many people are in the country. Are five million from latin america and asia here? Ten? Thirty?

The biggest abuse of disability is probably by unionized government workers. Their benefits are almost always far higher than the basic safety net provided to private sector employees.

Posted by K | May 5, 2007 9:25 PM