2/27/2012

Unemployment Rate, Labor Participation Rate, and How Many Jobs it takes to Keep Up With Population Growth

People are often confused with biased media reports that "unemployment" is going down, and that's supposedly a good thing. There's much more to the picture - but you'll never hear it from the media.

The number of jobs needed per month to keep up with population growth depends on the rate of population growth, and the labor participation rate.

CBO estimates show we need 260,000 new jobs per month just to keep pace with population growth (new Americans entering the labor force).

It would take 187,000 jobs added per month over the next year to hold the unemployment rate steady if the participation rate rises to 64.6%. If the participation rate stays steady, it will only take 95,000 jobs added per month.

If the economy does start adding more jobs per month, one would expect more people will then join the labor force - keeping the unemployment rate elevated. Of course more people could give up, and the labor force participation rate could fall further pushing down the unemployment rate - but that wouldn't be good news. In other words, a declining unemployment rate only tells a small part of the whole story.