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Interpreting Employment Rate


Many economists believe that the rising unemployment rate is overstating the degree of job market recovery, because the figure doesn’t include those who are discouraged and drop out of the work force. So, how about we take also take a look at employment rate? WSJ reports that the employment-population ratio rose to 58.8% in January, an level “that was consistently seen in 2009”. Although it is below pre recession levels, the authors thinks that it’s because of the aging population and that “some of the same factors that many economists believe are overstating the improvement of the unemployment rate are also understating the improvement in the employment-population ratio”.

On the same topic, Federal Reserve Bank of New York, in contrast, recently published a study on employment-population rate, and argues that it is a misleading indicator of the labor market, due to demographic changes. However, a normalized employment ratio, for example, only considering those in the working age of 25 to 64 years old, may be a better gauge.

As a result, the Atlanta Fed has decided to take down employment rate from its labor spider chart, which I think provides a more comprehensive picture than a single employment/unemployment rate. The various indicators on the labor spider chart show that although the labor market has recovered, there’s still a gap between the current level and the pre-recession level.

Sources: WSJ, NY Fed, Atlanta Fed

As prof I’m adding links to the macroeconomics blog of the Atlanta Fed – to her credit Christy uses their site – which has the following 3 posts, in order of publication:

  1. What Accounts for the Decrease in the Labor Force Participation Rate?
  2. A Prime-Aged Look at the Employment-to-Population Ratio
  3. and

  4. A Second Look at the Employment-to-Population Ratio


  1. See of course my blog posts on the “target” level of employment which I project from age-specific employment rates. See also the Atlanta Fed macro blog [the blogroll at upper right] for which the most recent two posts are on this issue.

  2. James dillard James dillard

    Employment regardless is still on the rise despite economist verbalizations regarding its spurious nature to predict economic recovery. With more jobs, less people are homeless, mortgages can be paid, and debt aroused through credit will decrease. Discouraged workers are an inhibiting indicator of true growth but employment up, unemployment down = growth.

  3. gjeong gjeong

    To be honest, I do not think any reported unemployment rate is accurate. As mentioned above, unemployment rate might not include the discouraged workers, etc. At the same time, I am not sure if the reported employment rate can actually represent the reality either…. However, what else can we take a look at?

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