Advancing Towards Full Employment

It is commonly believed that the reason the labor force participation rate is historically low is due to the relatively large group of baby boomers retiring - a demographic shift. And many consider the workforce is nearing full employment.

The graph below shows the participation rate for prime working age group (blue line) - and this group is within 3% of historical highs (red line on graph).

If the prime working age group is near historical participation rate highs - the the reason the participation rate is low must be the potential workers under 25 and over 54. Participation rate calculations require a decision on who is in the workforce. I am retired and not seeking employment - therefore I am not included in the workforce. But given the right job offer - I would accept. I assume there are many retired people who are in my position. Likewise, there are many under 25 and not in the workforce (going to school, travelling, just getting their act together) - but would jump on a good job offer.

What is interesting is that MOST of the growth in employment since the Great Recession has been from the 55 years and over group (purple line in graph below) . Employment in the 25 to 54 group (red line) is only 400,000 above the pre-Great Recession peak, and the 16 to 24 group (green line) have not yet fully recovered from the Great Recession.

Employment-population ratios give a better picture of the employment than participation rates. The graphs below show that even the 25 to 54 group is even well below historical employment-population levels.

I have a hard time believing people do not need to work any more to survive. From 2007 to 2014 those on disability rose 8% but only up 3% in the working age population. Not insignificant but not a major impact to employment-population ratios.

I view the historical high water mark in the employment-population ratios as a valid benchmark. What the data is saying is that the U.S. is not close to full employment - except in the 25 to 54 group (considering potential adjustment for disability). There is more than enough slack in the 16 to 24 group and the 55 and over group ..

Other Economic News this Week:

The Econintersect Economic Index for September 2018 shows the improvement cycle continues and remains well into territory associated with normal expansions. Our index retreated somewhat from last month's three and a half year high. Overall the forecast decline this month is insignificant. What is concerning is the mixed trend lines that are being seen - which usually happens when there is an overall reversal in trends.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Economy

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Steven Hansen

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