Have we reached the new “norm” for unemployment?

Have we reached the new “norm” for unemployment?

If economists are right, it’s going to take a lot less progress in the job market to get the unemployment rate to keep falling. Many are saying we’ve hit a leveling out point and might not see much for change for a while.

If you’ve been following the steady decline in the jobless figures you know that the reasons for the move are more complex and not just about more people finding work. Some of the reasons, when you really look at them are not particularly positive signs pointing to real economic progress for the country.

Much of the decline over the last few months has been because people are simply leaving the workforce. They are tired of the ups and down, ready for retirement and a different life. A record 94.7 million Americans are considered currently “out of the labor force” which is pushing the participation rate to its lowest level since October 1977.

Here’s the thing, if someone is not actively looking for employment then they simply aren’t counted in the headline number. So they might be unemployed but not really wanting to go back to work or they could be underemployed or simply taking a job to have cashflow because a regular job will of course earn more than an unemployment check.

This has been a big reason the rate decline from 10 percent in 2009 to recently 5.1 percent currently. The truth is it just doesn’t take as much job creation as it used to in order to get the unemployment rate to drop.

The current employment to population ratio of 59.2% is right about the same as it was when the unemployment rate was 9.6%.

Currently, if trends hold, it will take even fewer jobs to lower the headline rate than has been the historical norm.

Goldman Sachs economists have stated that it will take no more than 85,000 jobs a month now to keep the unemployment rate steady. That’s a departure from the long-held conventional economic wisdom that it would take between 150,000 and 200,000 new jobs released each month to maintain the unemployment rate level.

 

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