Considerable publicity was given to the decline in the official US unemployment rate to 8.3 per cent in January 2012 and the creation of 243,000 non-farm payroll jobs. The problem is that, as usual, no baseline or serious study of overall trends was given to evaluate this monthly data.
The reality is the number in US non-farm employment still remains 5.6 million, 4.1%, below its peak level in January 2008 (Figure 1). But this figure very substantially flatters as since then the US population has grown by almost 4%.
In fact there has been no significant increase in the percentage of the US population of working age in employment since the depth of the recession, and the participation rate in the labour force of the US population of working age continues to drop.
The sharp drop in the participation of the US participation of working age in the total labour force (i.e. employed and unemployed) is shown in Figure 2. Between January 2008, the peak of US non-farm employment, and January 2012 the participation rate in the US labour force of the population over the age of 16 fell by 2.5 per cent – from 66.2 per cent to 63.7 per cent.
Regarding those actually in employment the situation is worse. The percentage of the US population over the age of 16 in employment fell by 4.4 per cent, from 62.9 per cent to 58.5 per cent, between January 2008 and January 2012. There has been essentially no significant recovery from the low point of 58.2 per cent in December 2008 to the 58.5 per cent in January 2012 (Figure 3).
US GDP recovery is the slowest in this business cycle of any since World War II, and in December 2011, the latest available data, US industrial production was still 5.4% below its level in the previous business cycle. As productivity growth means that less workers are required even when previous peak levels of output are regained it will be a substantial period before the US regains its previous employment level. Paul Krugman therefore noted the situation accurately: ‘the gap remains huge. Suppose that we need 100,000 jobs a month to keep up with population growth, and that we’re 10 million jobs in the hole — both conservative estimates. Then we need about 7 years of growth at this rate to restore full employment.’
It remains to be seen whether US employment growth can continue at its present rate for seven years, But the fundamental trend so far during this business cycle has not been a decline in real unemployment but an increase in the proportion of the US population dropping out of the labour force.