May 24, 2024

Economix: How Many Jobs Should We Be Adding Each Month?

How many more jobs does the country need to get back to full employment? The short answer: as many as possible. The longer answer: It depends on how quickly you think Baby Boomers are retiring.

There are 6,955,000 fewer nonfarm payroll jobs today than there were when the recession officially began in December 2007. If the pace of job growth from April (244,000 jobs added) continues each month going forward, it will take 29 months before we have the same number of jobs as we had when the recession began.

And we should have more jobs than we had before the recession began. After all, the population is growing, and more and more Americans reach working age each month.

Exactly how quickly the size of the labor force is growing, or will continue to grow, is a matter of some debate, however.

Right now the labor force participation rate — that is, the share of people over age 16 who are either in a job or actively looking for one — is at 64.2 percent, where it has been stuck for four months. That is unusually low:

DESCRIPTIONSource: Bureau of Labor Statistics

In fact, it’s the lowest overall participation rate since 1984, when a smaller share of women were actively involved in the labor force. The number becomes more startling when you look just at men’s labor force participation rates over the years. As you can see, men currently have their lowest labor force participation rate since the Labor Department began keeping track since 1948:

DESCRIPTIONSource: Bureau of Labor Statistics

One reason that participation rates are so low is that many working-age Americans have given up looking for work because the job market is so poor. Some of them have gone on disability, which is likely to discourage them from ever rejoining the work force, and some are just waiting until the job market starts to look more promising.

Note, though, that labor force participation rates have been dropping even before the recession began in late 2007. The main explanation for why this is has to do with the changing demographics of the American population.

America, like many other developed countries, is getting older. Older people are less likely to be involved in the labor force, since many are easing into retirement. The Labor Department doesn’t use an upper-limit age cap when calculating the the labor force participation rate — it refers only to what share of people over age 16 are in the labor force — so government figures don’t adjust for the aging effect.

To be sure, many of the those in the baby-boom generation  have had to delay retirement, since the nest eggs they call “houses” have turned out to be worth much less than believed a few years ago. But even so, many workers are retiring, offsetting the number of young workers newly entering the labor force.

That means on net that the labor force probably will not grow as quickly as it did in years past, and so fewer payroll jobs are needed to absorb new entrants to the labor force each month. Typically the figure economists cite as the minimum number of additional jobs needed to keep the unemployment rate flat is about 150,000 to 200,000.

But economists at Barclays Capital, who have been analyzing how the graying of America may affect employment trends, estimate that going forward 75,000 to 100,000 jobs added per month may be sufficient.

The bottom line is that the path back to full employment is going to be long and scary no matter what. But if you think Boomers are leaving the job market relatively quickly, that slog starts to look a little less painful.

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