February 12, 2015
Last Friday the Bureau of Labor Statistics (BLS) released its “Employment Situation Summary” for the month of January. The Bureau’s data show that both employment and unemployment increased last month; seasonally adjusted employment increased from 147.4 million workers in December to 148.2 million in January, while unemployment increased from 8.7 million workers to 9.0 million. Because of the uptick in the number of unemployed workers, the unemployment rate rose 0.1 percentage points to 5.7 percent.
But as I wrote last month, the unemployment rate is an imperfect measure of labor market health. My own preferred measure, as I explained in January, is the employment-to-population ratio (EPOP) of the working-age population, consisting of Americans aged 25 to 54.
By this measure, the job market is recovering, but is doing so slowly. The working-age EPOP actually fell from 77.0 percent in December to 76.7 percent in January; however, this measure doesn’t take into account seasonal effects. And it’s tremendously important to consider these effects in January, which has historically been the single weakest month for working-age employment. Between 1948 and 2013, January’s working-age EPOP averaged about 72.2 percent, compared with 73.0 percent for the period as a whole. In both 2013 and 2014, January’s working-age EPOP lagged the annual working-age EPOP by about 0.8 percentage points, fully consistent with the long-run historical trends.
A simple way of correcting for these seasonal biases is by taking a 12-month moving average of the unadjusted data. By this measure, the working-age EPOP ratio actually rose about 0.1 percentage points in January, up from 76.7 percent in December to 76.8 percent last month:
So by the standards of January, this was a fairly good month. January 2015’s unadjusted working-age EPOP was 1.6 percentage points higher than January 2013’s working-age EPOP, and was 0.8 percentage points higher than last January’s working-age EPOP.
But it’s important to keep some perspective on these numbers. As of December 2007—the first month of the recession—the seasonally adjusted working-age EPOP stood at 79.9 percent. It fell to a low of 75.0 percent in October 2011; since hitting this trough, it has only risen 1.8 percentage points to 76.8 percent. In other words, we have only made up about 35.4 percent of the ground lost during and immediately following the recession. Even if the working-age EPOP continues increasing at a rate of 0.8 percentage points per year—consistent with the January-to-January increase from 2014 to 2015—it’ll be nearly four years before the labor market returns to its pre-recession level of employment. If growth picks up—perhaps because of the tapering off of austerity—we could see the labor market recover in less than four years. But even if this happens, we are surely looking at multiple years of a depressed job market. Employment is recovering, but it isn’t time to pop the champagne just yet.
