When Looking at Jobs Numbers, Factor in a Changing Workforce

Today an article from Floyd Norris on the Dealbook page of the New York Times caught our attention.

In recent years we've seen better-than-expected improvements in the unemployment rate, given the stubbornly slow pace of job growth. The article notes that decades ago, a rule of thumb was established that the economy needed to add 150,000 jobs each month to accommodate new entrants into the labor market and maintain the same unemployment rate. In the past 24 months, the unemployment rate declined by more than 2 percentage points -- one of the fastest declines on record -- although job growth averaged 167,000 per month, not far above the accepted "break-even" rate.

Norris explains that the slow growth of the workforce has allowed the unemployment rate to fall rapidly, even with slower employment growth than the U.S. experienced prior to the Great Recession. The number in the labor force continues to grow, in part because many baby boomers delayed retirement in recent years. Despite this, the labor force participation rate is on the decline. One reason for this decline -- the one that gets the most attention -- is that long-term job seekers who are unable to find work drop out of the labor force. He argues that over time though, the main driver behind the declining unemployment rate is the aging workforce. 

Although a historically large share of the workforce will be made up of workers ages 55 and older in the coming years, the baby boomers are gradually moving into retirement. As those retirements occur and fewer participants in younger age groups take to the workforce, the labor force participation rate is projected to continue declining to lows not seen since at least the 1980s.

The article notes that with those demographic shifts, the U.S. will not need to create the same number of jobs to keep unemployment rates steady. This will impact economic growth, too. From 1948 to 2001, growth in the workforce contributed an estimated 1.7 percent each year to the national economy. Over the next few years, that contribution is projected to be about one-half of a percentage point.

For more information, check out the full article from the New York Times.