I present some evidence that the unemployment rate understates the weakness in the labor market recovery and that a full-time-equivalent (FTE) employment to population ratio is a better measure of labor market activity in a guest post at Modeled Behavior. This is the approach we take in the Welch Consulting Employment Index.
In the post I calculate that FTE employment is 6.1% below trend. My calculations of FTE employment relative to trend account for the changing age composition of the population and quite different trends in employment rates within each age group.
One of the most important observations that I make in my post is that over 40% of the shortfall in full-time employment is among adults age 55+. To non-labor economists this observation may seem surprising because FTE employment rates for adults age 55+ remained steady since 2008. But employment rates were trending up for this group quite steadily prior to the recession as the following figure shows.
If the labor market recovery was typical of most postwar recoveries employment rates for the age 55+ cohort would still be increasing. The fact that employment rates have remained constant since 2008 is very disappointing. The natural employment rate for this age cohort is trending up for several reasons: (I) the Social Security retirement age for this age group is now 67 rather than 65 so more seniors will remain employed, (2) increases in life expectancy, (3) the aging of the baby boom cohort means that a higher fraction of the age 55+ group are in the 55-59 and 60-64 age categories that have always displayed higher employment rates, and (4) women now reaching age 55 have much greater labor force attachment throughout their careers than earlier cohorts of women.
The bottom line is that despite the unemployment rate dropping from 10% to 7.3% (which is still quite high) the labor market is much weaker than the official unemployment rate would suggest. There are millions of adults in part-time work who in previous recoveries would have been working full-time and there are millions more who have given up looking for work and are no longer counted as part of the labor force.