The Federal Reserve Bank of New York has provided us with an interesting interactive tool that examines the employment situation in the United States. With this tool, we can look at three indicators of labour market health; the unemployment-to-population ratio, the labour force participation rate and the unemployment rate. As well, we can compare the behaviour of these three indicators over the past five economic cycles for men and women of different age groups from the nadir of the cycle to its end at the nadir of the next cycle. This data can then be compiled to show us what employment trends we can expect in the future.
Let's start by looking at a graph that shows the employment-to-population ratio and unemployment rate since 2005:
Using this formula, we can calculate and express the change in the unemployment rate from the unemployment trough of the preceding expansion as:
Now let's look at a graph that shows the labour force participation by gender since 1970:
The participation rate by women increased steadily since the post-World War II period as the employment behaviour of married women changed. The rate reached 60 percent during the 1990s and has slowly fallen since the end of the Great Recession. The workforce participation rate by men, on the other hand, has been steadily falling since the early 1970s from the 80 percent level to its current level of 70 percent and took a particularly steep drop since the beginning of the Great Recession.
Here are a series of graphs showing the key labour market indicators for both genders of all ages over the past five cycles noting that the unemployment rate is in red, the labour force participation rate is in khaki and the employment-to-population ratio is in blue:
During the first three economic cycles, labour force participation was either flat or rising during the cycles and was associated with a rising employment-to-population ratio. This trend changed in 2001 and 2007 when labour force participation declined and, as the "recovery" took place, the employment-to-population ratio showed little overall improvement, particularly after the latest recession.
Here is are a series of graphs showing the same data for women of all ages:
Here is the same data for men of all ages:
You can see that the employment-to-population ratio for men has slowly risen since mid-2011 after a steep decline at the beginning of the Great Recession. Such is quite clearly not the case for women whose employment-to-population ratio continues to fall.
During the recessions in 1973, 1981 and 1990, women continued to enter the workforce. The entry of women into the labour force offset the decline in male participation during these cycles and resulted in a higher employment-to-population ratio. This changed in the 2001 and 2007 recessions and, during the most recent recession, women's workforce participation has continued to fall, pushing their employment -to-population ratio to ever lower levels which, for the first time in four decades, has resulted in a lower total employment-to-population ratio. It is also interesting to note that, in the last recession, while the unemployment rate of women did not rise as much as the rate for men, it has also not declined by very much since the economic recovery began.
How does all of this information impact us and what does it suggest for the future? Over the past few decades, annual employment growth rates have changed markedly. In 1965, the annual employment growth rate was 2.4 percent; this declined to 0.9 percent in 2005, for two main reasons; a drop in the female labour force participation rate and the aging of the American workforce. Since the net change in the growth in productivity over this time period is small, the slower growth in employment will result in a slowdown in the growth of GDP. As well, these demographic changes that have resulted in low employment growth rates imply that future recessions will be deeper, recoveries will be slower and the trend suggests that these recoveries will be jobless. Looking at data from our most recent "recovery" proves this hypothesis as listed below:
1.) During the 8 quarters following recessions between 1960 and 1982, GDP grew by an average of 11.0 percent - after the Great Recession, GDP grew by only 5.0 percent.
2.) During the 8 quarters following recessions between 1960 and 1982, employment grew by an average of 5.9 percent following the trough - after the Great Recession, employment increased by only 0.6 percent.
Despite the efforts of government stimulus and central bank intervention, perhaps there are demographic forces that are creating an employment situation from which there is little hope of meaningful recovery. Maybe this is our "new reality". Perhaps, despite all of the mumbling about lower tax rates for our elite job creators, we have no choice but to get used to it.