Sunday, July 10, 2011

How many jobs are needed over the next year to keep the unemployment rate steady?

by Bill McBride on 7/10/2011 05:42:00 PM

Dean Baker writes: We Need 90,000 Jobs Per Month to Keep Pace With the Growth of the Population

In an article on the June employment report the NYT told readers that the economy needs 150,000 jobs per month to keep pace with the growth in the population. Actually, the Congressional Budget Office projects that the underlying rate of labor force growth is now just 0.7 percent annually. This comes to roughly 1,050,000 a year or just under 90,000 a month.
Here is the CBO report that Baker mentions: CBO’s Labor Force Projections Through 2021

The number of jobs needed per month to keep up with population growth depends on the rate of population growth, and the participation rate. We also have to be clear on the time frame we are discussing. The CBO report is through 2021, and the CBO is projecting the participation rate to fall to 63% by 2021 due to an aging population.

If, instead, we asked how many jobs are needed over the next year to keep the unemployment rate steady using the CBO projection of the participation rate, the answer is very different. The CBO is projecting the participation rate will be at 64.6% in 2012 and the current participation rate is 64.1%.

I've been projecting some bounce back in the participation rate too - but it hasn't happened yet.

The following table uses the CBO projections and provides an estimate of the jobs needed per month (per the household survey1) to hold the unemployment rate steady.

The first column is actual for June 2011 as reported by the BLS. The second column is using the CBO projections, the third column is a modified CBO using the June 2011 population estimate and a lower estimate for the next 12 months (population only increases 1.8 million).

The fourth column is for the participation rate staying steady at 64.1% (no bounce back).

Jobs needed over next 12 months to hold unemployment rate constantCurrentProjections
BLSCBOCBO modified2Participation Rate Unchanged
Jun-11Jun-12Jun-12Jun-12
Civilian noninstitutional population, 16 and over (millions)239.5242.8241.3241.3
Participation Rate (Percent)64.1%64.6%64.6%64.1%
Labor Force (millions)153.4156.8155.9154.7
Employed (millions)139.3142.4141.5140.4
Unemployed (millions)14.114.414.314.2
Unemployment Rate9.2%9.2%9.2%9.2%
Jobs needed to hold unemployment rate constant (millions) 3.12.21.1
Jobs needed per month 260,000187,00095,000
 
Lower Unemployment Rate to 8.2% CBOCBO Modified2Participation Rate Unchanged
Unemployment Rate 8.2%8.2%8.2%
Employed (millions) 144.0143.1142.0
Unemployed (millions) 12.912.812.7
Jobs need to lower unemployment rate to 8.2% (millions) 4.73.82.7
Jobs needed per month 391,000316,000224,000

1 This is all based on the household survey. The headline payroll number is from the establishment survey.
2 The modified CBO uses the actual population for June 2011 and assumes the population only increases 1.8 million over the next 12 months.

It would take 187,000 jobs added per month over the next year to hold the unemployment rate steady if the participation rate rises to 64.6%. If the participation rate stays steady, it will take 95,000 jobs added per month.

I also included the number of jobs needed to lower the unemployment rate by one percentage point to 8.2%. If the participation rate rises, then it would take 316,000 jobs per month. If the participation rate stays steady, it would take 224,000 jobs per month to lower the unemployment rate to 8.2%.

If the economy does start adding more jobs per month, I expect more people will then join the labor force - keeping the unemployment rate elevated. Of course more people could give up, and the labor force participation rate could fall further pushing down the unemployment rate - but that wouldn't be good news.

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