The Big Picture of the Labor Markets
once again: looking back to 2011 up to 2014; and onward
We’ve been focusing
on the bigger picture and we promised to drill down on the labor markets by age
group, but let’s go through that big picture one more time…
From 2011 through
2014, unemployment dropped by 4.1 million –-- must be a good thing, right…not
so fast. The problem was that the
Civilian Noninstitutional Population – CNP (16+ years of age, not counted in military,
prison, or otherwise institutionalized) grew by 8.3 million and the employment
grew by 6.4 million. When the change in
the Employed (6.4 million) are added to the Unemployed (-4.1 million), the
resulting Labor Force change is 2.3 million.
Since the CNP grew by 8.3 million, and only 2.3 million were added to
the Labor Force, then labor markets were only absorbing those people at a 27.7%
rate (marginal Labor Force Participation Rate or LFPR).
If those 4.1
million moving from the ranks of the unemployed had been absorbed into the
Labor Force, Employment would have been much more robust (by 4.1 million) and
the Labor Force Participation Rate would be at a much healthier 64.6%. At the end of the day, it is far more
important that those folks moving from the ranks of the unemployed move into
the other side of the Labor Force (Employed +Unemployed), than into the ‘not in
the Labor Force’ category.
What if Employment
were to grow at the same rate as the Population and Unemployment remained
Looking ahead over
a seven year period, if the Civilian Noninstitutional Population (CNP) expanded
at a rate of 200,000 per month and the Unemployment level remained the same,
and all of the new adds to the CNP translated into higher employment (200,000
per month on a net basis), what a difference it would make to the labor
Employment would grow by 16.8 million
remain at 8.6 million, but due to the new adds to the Civilian Noninstitutional
Population, the U-3 Unemployment Rate would drop from 5.5% to 4.9%.
Since the Labor
Force would expand by 16.8 million (same amount as the new adds on CNP front),
this would drive the Labor Force Participation Rate back to a much more
respectable 65.1% rate.
What would happen if
the 4.1 million reduction in Unemployment between 2011 and 2014 had moved into
the Employed, rather than out of the Labor Force?
On a different
take, in our last newsletter we highlighted the fall-off in the real median
income for households (stated in 2013 dollars) where it went from $56,436 in
2007 to $51,939 in 2013.
numbered 122,952,000 in 2013 (total population was about 316.5 million, so that
comes out to around 2.6 people per household) so that represents a fixed pie so
to speak; meaning, if we add or subtract jobs to the mix, the number of
households would remain constant for that snapshot.
Again, in 2013 the
median (average) real income per household was $51,939 and the household total
was 122,952,000, this brings us to a total ‘real’ income of $6.4 trillion
previously, and illustrated below, if the 4.1 million from the unemployed had moved
into the employed sector (on a net basis), rather than moving into the ‘not in
the labor force’ component of the Civilian Noninstitutional Population, then an
average income of $15,000 per year (full-time at current minimum wage of $7.25
per hour), would have added around $500 to the median income ($51,939 to
The point of this
is exercise is that while we would love to see high paying, high quality jobs
added to the economy; at the moment, it’s more about stopping the bleeding
(people moving out of the labor force) and any job growth in the private sector
is welcome. The emphasis on private
sector is important since public sector jobs are funded most directly by
taxes. This is not to say that private
sector jobs are entirely disconnected from the public sector (e.g., defense industry,
consultants, contractors, etc.), but it is the private sector growth where
there is the biggest bang for the buck, so to speak.
So the trick is to
add more jobs to the economy from either the monthly growth in the Civilian
Noninstitutional Population or from the ranks of the unemployed. The last thing we want to see are more people
moving out the ranks of the Labor Force (Employed + Unemployed actively seeking
employment) and into the ‘not in the labor force’ component of the Civilian
There was good
news for the month of April in that there was job growth to the tune 192,000; a
fall-off in Unemployment (-26,000); for an increase in the Labor Force
(Employed + Unemployed seeking employment) in the amount of 166,000, again all
monthly figures representing a change from March 2015 through April 2015.
The Labor Force
Participation was also strong for the month of April: Labor Force (166,000)
divided by Civilian Noninstitutional Population (186,000), for a marginal LFPR
for the month of 89.2%. Remember, even
if we see higher unemployment in the months ahead; so long as the Labor Force
continues to grow at a high rate, then the labor markets will continue to