The Labor Market Recovery is Weak

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.

 

 

 

Welch Consulting Employment Index Rebounds in January

The Welch Consulting Employment Index is 94.9 for January 2013, up from 94.5 in December.  The employment index increased despite the increase in the U.S. unemployment rate because more people were participating in the labor force in January, as a fraction of the total population, compared to December.  An index value of 94.9 means that full-time equivalent employment (from the BLS household survey) is 5.1% below its level in the base year of 1997, after adjusting for both population growth and changes in the age distribution of the labor force.  The index has recovered from sharp declines in the summer of 2012 and is the same as it was in March 2012.  This means that full-time employment has kept pace with population growth over the past ten months.  Over the past five years the Welch Consulting Employment Index has fallen 6.2% (it was 101.2 in January 2008).

The Welch Consulting Employment Index, disaggregated by gender, is 92.8 for men and 97.7 for women.  Both the indices for men and women are up sharply slightly from December.  Over the past ten months the men’s index is up 0.3% while the women’s employment index is down 0.2%.  Over the past five years the men’s employment index is lower by 6.5% and the women’s index is lower by 5.7%.

 

Technical Note: Full-time equivalent employment equals full-time employment plus one half of part-time employment from the BLS household survey.  The Welch index adjusts for the changing age distribution of the population by fixing the age distribution of adults to the 1997 base year.  The Welch Index adjusts for population growth by fixing total population to its 1997 level.  Seasonal effects are removed in a regression framework using monthly indicator variables.

 

 

Welch Consulting Employment Index Continued its Decline in December

The Welch Consulting Employment Index was 94.5 in December; down from 94.6 in November.  An index value of 94.5 means that full-time equivalent employment (from the BLS household survey) is 5.5% below its level in the base year of 1997, after adjusting for both population growth and changes in the age distribution of the labor force.  The index had recovered this fall from the sharp declines experienced in the summer of 2012, but has fallen for two straight months.  Moreover, the index is now below its level in March 2012.  Full-time employment has not quite kept pace with population growth over the past nine months.  The Welch Consulting Employment Index has grown by less than one percent per year over the past two years.

The Welch Consulting Employment Index, disaggregated by gender, is 92.4 for men and 97.1 for women.  Both the indices for men and women are down slightly from November.  Over the past nine months the men’s index is down 0.1% while the women’s employment index is down 0.8%.  Over the past two years the men’s employment index has grown by 1.4% per year and the women’s index has grown by 0.4% annually.

Technical Note: Full-time equivalent employment equals full-time employment plus one half of part-time employment from the BLS household survey.  The Welch index adjusts for the changing age distribution of the population by fixing the age distribution of adults to the 1997 base year.  The Welch Index adjusts for population growth by fixing total population to its 1997 level.  Seasonal effects are removed in a regression framework using monthly indicator variables.

The Welch Consulting Employment Index Continued to Rebound in October

The Welch Consulting Employment Index is 94.8 for October 2012, up 1.4% from October 2011 (seasonally adjusted).  An index value of 94.8 means that full-time equivalent employment (from the BLS household survey) is 5.2% below its level in the base year of 1997, after adjusting for both population growth and changes in the age distribution of the labor force.  The index is at its highest level since March 2012.  The index is 2.0% higher than its level two years ago and is 2.9% above its lowest level ever reached in July 2011.  The index had fallen sharply in the spring and early summer but has recovered all of those losses over the past two months.

The Welch Consulting Employment Index, disaggregated by gender, shows that the labor market recovery has been stronger for men than for women since 2009.  The index for men is 92.6 for October 2012, up 1.9% over the past twelve months, and up 3.0% since October 2009.  The index for women is 97.5 for October 2012, which is down slightly over the past month, and up much less (0.9%) over the past twelve months and past three years (0.7%) than it has been for men.  Despite the difference in trends over the past three years favoring men, the index for men remains well below the index for women.  This is because men lost many more full-time equivalent jobs (a decline of 9.5%) than women (a decline of 5.0%) from the beginning of 2008 through the fall of 2009.

Technical Note: Full-time equivalent employment equals full-time employment plus one half of part-time employment from the BLS household survey.  The Welch index adjusts for the changing age distribution of the population by fixing the age distribution of adults to the 1997 base year.  The Welch Index adjusts for population growth by fixing total population to its 1997 level.  Seasonal effects are removed in a regression framework using monthly indicator variables.

Welch Consulting Employment Index Rebounds Sharply in September

The Welch Consulting Employment Index is 94.6 for September 2012, up 1.4% from September 2011 (seasonally adjusted).  An index value of 94.6 means that full-time equivalent employment (from the BLS household survey) is 5.4% below its level in the base year of 1997, after adjusting for both population growth and changes in the age distribution of the labor force.  The index rebounded sharply in September reversing most of the declines experienced over the past six months; the index was 94.9 in March 2012.  The index is now 1.4% above its level three years ago.

The Welch Consulting Employment Index for men is 92.2 for September 2012, up 1.6% over the past twelve months, and up 2.2% over the past three years.  The index for women is 97.7 for September 2012, up 1.2% over the past twelve months, but up just 0.4% over the past three years. Although employment growth has been slower for women than for men over the past twelve months, men’s employment remains far below its pre-recession peak.  Men’s employment relative to population, adjusting for the changing age distribution and accounting for part-time employment, is down 7.9% since early 2007.

Technical Note: Full-time equivalent employment equals full-time employment plus one half of part-time employment from the BLS household survey.  The Welch index adjusts for the changing age distribution of the population by fixing the age distribution of adults to the 1997 base year.  The Welch Index adjusts for population growth by fixing total population to its 1997 level.  Seasonal effects are removed in a regression framework using monthly indicator variables.

Employment Growth during Presidencies of Barack Obama and George W. Bush

The Welch Consulting Employment Index is 93.3 for August 2012, up 0.8% from August 2011 (seasonally adjusted).  An index value of 93.3 means that full-time equivalent employment (from the BLS household survey) is 6.7% below its level in the base year of 1997, after adjusting for both population growth and changes in the age distribution of the labor force.  The index has fallen over the past five months, it was 94.9 in March.  The index remains weak because part-time employment is higher than it has been historically and employment growth has barely exceeded population growth over the past two years.

The following chart compares employment changes in the first 44 months of the first terms of Presidents George W. Bush and Barack Obama.  George W. Bush took office when the employment index was 101.8, one of the highest values in the past 15 years, while the index had fallen to 96.9 by the time Barack Obama was inaugurated.   Nonetheless there has been a similar decline in employment during the first three and a half years of their administrations.  Between George W. Bush’s inauguration in January 2001 and August 2004 the employment index fell by 3.4%.  The corresponding change for President Obama’s first term is a 3.7% decline in the employment index between January 2009 and August 2012.

The similarities in the pattern of employment decline during these administrations becomes even more clear if the chart axes are adjusted to account for the differences in the state of the labor market between 2001 and 2009.

 

The first terms of the Bush and the Obama administrations have been characterized by steady declines in full-time-equivalent employment relative to the growth in the adult population.  The primary difference in the jobs record is that President Bush inherited an unusually strong labor market with a very low unemployment rate and a high rate of full-time equivalent employment. President Obama inherited a labor market that was already declining fairly rapidly.  After 44 months of their presidencies, however, the net percentage change in employment is remarkably similar across administrations.

Technical Note: Full-time equivalent employment equals full-time employment plus one half of part-time employment from the BLS household survey.  The Welch index adjusts for the changing age distribution of the population by fixing the age distribution of adults to the 1997 base year.  The Welch Index adjusts for population growth by fixing total population to its 1997 level.  Seasonal effects are removed in a regression framework using monthly indicator variables.

The Welch Consulting Employment Index Continues Its Sharp Decline

The Welch Consulting Employment Index fell to 93.3 in July 2012.  An index value of 93.3 means that full-time equivalent employment (from the BLS household survey) is 6.7% below its level in the base year of 1997, after adjusting for both population growth and changes in the age distribution of the labor force.  The index is down sharply over the past three months; the index was 94.7 in April 2012.  The index remains below its level three years ago and is only 1.2% above its historic low reached exactly one year ago.  The index remains weak because part-time employment is at historically high levels and employment growth has barely exceeded population growth over the past year.

The Welch Consulting Employment Index, disaggregated by gender, shows that the labor market recovery has been much weaker for women than men since 2009.  The index for men is 91.2 for July 2012, up 1.9% over the past twelve months, and up 1.2% since July 2009.  The index for women is 96.7 for July 2012, up 0.5% over the past twelve months, but down 1.8% over the past three years.  Finally, since President Obama took office in January 2009, the employment indices are down 2.8% for men and down 4.9% for women.

Technical Note: Full-time equivalent employment equals full-time employment plus one half of part-time employment from the BLS household survey.  The Welch index adjusts for the changing age distribution of the population by fixing the age distribution of adults to the 1997 base year.  The Welch Index adjusts for population growth by fixing total population to its 1997 level.  Seasonal effects are removed in a regression framework using monthly indicator variables.

Welch Consulting Employment Index for June 2012

The Welch Consulting Employment Index is 93.8 for June 2012.  The index is down sharply over the past three months, it was 94.9 in March, and fell slightly below its value in June 2009.  The index is up 1.5% from June 2011 (seasonally adjusted).  An index value of 93.8 means that full-time equivalent employment (from the BLS household survey) is 6.2% below its level in the base year of 1997, after adjusting for both population growth and changes in the age distribution of the labor force.  The index is up about 1.8% from its trough in July 2011.  

The Welch Consulting Employment Index, disaggregated by gender, shows that the labor market recovery has been weaker for women than men over the past three years.  Of course, men lost more jobs than women during the first year of the recession and therefore had more ground to make up in the past three years.  The index for men is 91.6 for June 2012, up 1.9% over the past twelve months, and up 1.1% in the past three years.  The index for women is 96.7 for June 2012, up 0.9% over the past twelve months, but down 0.5% over the past three years.  Finally, since President Obama took office in January 2009, the employment indices are down 2.3% for men and down 4.1% for women.

Technical Note: Full-time equivalent employment equals full-time employment plus one half of part-time employment from the BLS household survey.  The Welch index adjusts for the changing age distribution of the population by fixing the age distribution of adults to the 1997 base year.  The Welch Index adjusts for population growth by fixing total population to its 1997 level.  Seasonal effects are removed in a regression framework using monthly indicator variables.

May 2012 Welch Employment Index: The Labor Market Recovery Has Slowed

The Welch Consulting Employment Index is 94.5 for May 2012, up 1.1% from May 2011 (seasonally adjusted).  An index value of 94.5 means that full-time equivalent employment (from the BLS household survey) is 5.5% below its level in the base year of 1997, after adjusting for both population growth and changes in the age distribution of the labor force.  The index is up about 2.6% from its trough in July 2011, but almost all of the gains were in the second half of 2011.  The index is down slightly over the past three months.  The current value of the index is 6.9% lower than the pre-recession peak reached in January 2007.

The Welch Consulting Employment Index, disaggregated by gender, shows that the labor market recovery has been weaker for women than men over the past year.  Of course, men lost more jobs than women during the first year of the recession and therefore had more ground to make up in the past three years.  The index for men is 92.3 for May 2012, up 1.5% over the past twelve months, but down 7.7% from its pre-recession peak.  The index for women is 97.3 for May 2012, up 0.5% over the past twelve months, but down 6.1% from its pre-recession peak.  Finally, since President Obama took office in January 2009, the employment indices are down 1.6% for men and down 3.5% for women.

Technical Note: Full-time equivalent employment equals full-time employment plus one half of part-time employment from the BLS household survey.  The Welch index adjusts for the changing age distribution of the population by fixing the age distribution of adults to the 1997 base year.  The Welch Index adjusts for population growth by fixing total population to its 1997 level.  Seasonal effects are removed in a regression framework using monthly indicator variables.