Wednesday, August 8, 2012

Labor market indicators, continued

There were some guesses in the comment section of this post.

This is the unemployment rate:

This is the employment to population ratio:

And this is the labor force participation rate:

I prefer the employment to population ratio to the unemployment rate, despite the fact that we usually talk about the unemployment rate. The obvious reason is that employment is really the quantity in the labor market that we're interested in. If demand for labor is down employment goes down. Unemployment usually goes up too, but that depends on how people answer questions about whether they're looking for work, etc. Unemployment depends on search behavior which brings up its own host of issues. The simple macroeconomic point of "is there enough demand to support a given volume of employment" is better captured by the employment to population ratio.

You can see this in the labor force participation rate as well. Notice that continues to go down despite the fact that the employment to population ratio has flatlined. That suggests the ability of the market to employ workers has been staying roughly the same, workers have just been switching the answer to the question of whether they're looking for work or not.

I have more discussion of the abuse of the unemployment rate metric here.

Commenter Joseph Fetz was curious about Bartleby's opinion on this. He's sleeping in my lap as I type, so he can't be reached for comment.

1 comment:

  1. In general I agree, however a falling employment to population ratio could be the result of prosperity encouraging workers to leave employment for leisure. Unemployment shows this not to be the case. The other thing evident from these is that while unemployment compensation has kept workers in the workforce, it has most definitely not kept them from employment as the unemployed have been leaving the workforce after unemployment compensation runs out. Conservatives will naturally ignore this since it doesn't fit in their narratives.


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