US Job Market Not As Strong As Perceived

Despite endless streams of Fed Speakers proclaiming, in one form or another, that “we are at, or close to, full employment;” many in America – judging by the election of President Trump – are not feeling as exuberant as the jobs data implies they should be. The SF Fed itself now agrees: “the labor market may not be quite as tight as the headline unemployment rate suggests.

As we detailed previously, between 1948 and 2015, the work rate for U.S. men twenty and older fell from 85.8 percent to 68.2 percent. Thus the proportion of American men twenty and older without paid work more than doubled, from 14 percent to almost 32 percent. Recent data over the last number of years have begun to show that it is not just the American male who is struggling.

The participation rate of female workers is beginning to decline as well. The trend in the workplace has not been our friend.

And The San Franciso’s Fed researchers Regis Barnichon and Geert Mesters question “how tight is the US labor market?”

The current low unemployment rate compared with previous labor market peaks has raised some fears regarding whether the labor market has become too tight. In this Letter, we use a new method to isolate the effects of demographic changes on unemployment, and we find that the demographic-adjusted unemployment rate is still 0.3 to 0.4 percentage point higher than it was at past labor market peaks.



This indicates that the labor market may not be quite as tight as the headline unemployment rate suggests.

The researchers note that there is a major demographic effect in this

As of February 2017 the shift-share adjusted rate stands at 5.0%—the same level as in the 1979 and 1989 labor market peaks (green line) and only one-tenth higher than the 2006 peak—which appears to confirm the initial impression of a tight labor market.


However, we believe this conclusion is premature. We find that the standard approach to demographic adjustment does not properly capture the full effects of demographic changes. In fact, once we address the shortcomings of the standard approach, the demographic-adjusted unemployment rate appears to be higher than all its previous lows since 1976.


Taking a longer-run perspective, we consider the effects of demographics on unemployment since the mid-1970s and their underlying causes. Figure 2 shows that demographic factors lowered the unemployment rate by about 2 percentage points over this period, according to our adjustment method. This number is substantially larger than that implied by a conventional shift-share analysis, which suggests demographics lowered unemployment by just over 1 percentage point.


So, in other words, if Yellen ever needs an excuse to get dovish, her own SF Fed research department just offered up PhD-style proof that the economy is not as strong as everyone hopes for… due to demographics.

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Furthermore, any reasonable analysis suggests that in the future, the rate at which jobs are being lost to new technologies is only going to double and triple. This is one of the central problems facing society today, not just in the US but all across the developed world.