The November Employment Report

Earlier today, the Bureau of Labor Statistics payroll survey claimed that the U.S. added 120,000 jobs in November while the population survey claimed that the unemployment rate fell from 9.0% to 8.6%. Furthermore, the BLS revised its earlier estimates for job growth in September and October, adding an additional 127,000 jobs. This sounds like good news. Sadly, however, it is not. The gains in payrolls are still too meager to put a meaningful dent in the number of people without work. Likewise, the sharp drop in the headline unemployment rate is due more to a collapse in the number of people looking for work rather than actual growth in the number of people employed.

The first thing to consider, as I always have, is the percentage of the population currently employed by the private sector:

As you can see, despite the seemingly-impressive job gains, the share of the population working for private employers is only marginally higher than at the bottom of the recession.

Another perspective I find helpful is to look at the number of people employed by the private sector relative to the number of people who would be employed if the ratio of private employment to population were still at its cyclical peak of May, 2007:

The gap between the purple and red lines represents nearly 10 million people without work. Moreover, at current growth rates, we will not return to pre-crisis employment conditions for about twenty-five years. In the meantime, tens of millions of people will go without work.

So given the utter lack of progress at closing the employment gap, how was it possible that the unemployment rate fell as much as it did (or at all)? The answer is that the denominator collapsed. The unemployment rate is calculated by looking at some made-up number called the labor force, which is more or less a self-described group of people who have jobs or are actively looking for jobs. When people give up looking for work or postpone facing the job market by going to grad school or working overseas, they are not counted.

Since the most recent peak in October, 2008, more than one million people have vanished from the labor force. If the labor force had grown at the same pace as the U.S. population, it would be larger by more than six million people. This chart compares the actual labor force data with what one might expect given a constant share of the population in the labor force:

For perspective, this is what happens when you count the unemployment rate using the more accurate labor force numbers:

Have a good weekend.


About Matthew C. Klein
I write about the economy and financial markets for Bloomberg View. Before that I wrote for The Economist on a fellowship provided by the Marjorie Deane Financial Journalism Foundation. I have worked at the world's largest hedge fund and read every FOMC transcript since May, 1987.

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