Best of the Week
Most Popular
1.US Paving the Way for Massive First Strike on North Korea Nuclear and Missile Infrastructure - Nadeem_Walayat
2.Trump Reset: US War With China, North Korea Nuclear Flashpoint - Video - Nadeem_Walayat
3.Silver Junior Mining Stocks 2017 Q2 Fundamentals - Zeal_LLC
4.Soaring Inflation Plunges UK Economy Into Stagflation, Triggers Government Pay Cap Panic! - Nadeem_Walayat
5.The Bitcoin Blueprint To Your Financial Freedom - Sean Keyes
6.North Korea 'Begging for War', 'Enough is Enough', is a US Nuclear Strike Imminent? - Nadeem_Walayat
7.Bitcoin Hits All-Time High and Smashes Through $5,000 As Gold Shows Continued Strength - Jeff_Berwick
8.2017 is NOT "Just Another Year" for the Stock Market: Here's Why - EWI
9.Gold : The Anatomy of the Bottoming Process - Rambus_Chartology
10.Bitcoin Falls 20% as Mobius and Chinese Regulators Warn - GoldCore
Last 7 days
Here’s Why Turkey Can’t Stay Out Of Syria - 25th Sep 17
Hidden Gems Shows A Foreboding Stock Market Future - 25th Sep 17
10 Reason You Should Use Ridesharing To Save Money - 25th Sep 17
Commodities King Gartman Says Gold Soon Reach $1,400 As Drums of War Grow Louder - 25th Sep 17
Stock Market Mixed Expectations, Will Stocks Continue Higher? - 25th Sep 17
22 charts and 52 questions that will make you Buy Gold - 25th Sep 17
Speculation Favors Overall Higher Silver Prices - 25th Sep 17
The Advertising Breakthrough Revolutionizing Gaming - 25th Sep 17
Stock Market Forming a Reluctant Top - 25th Sep 17
Grid Forex Strategy - All You Need to Know - 25th Sep 17
Catalonia, Kurdistan, Patriotism, Flags and Referendums - 24th Sep 17
Two Key Indicators Show the S&P 500 Becoming the New ‘Cash’ - 24th Sep 17
The Felling of Sheffield's Big Street Trees 2017 - Dobcroft Road - 24th Sep 17
Advantages of Forex Trading - 24th Sep 17
Stocks, Gold, Dollar, Bitcoin Markets Analysis - 23rd Sep 17
How Will We Be Affected by a Series of Rate Hikes? - 23rd Sep 17
Fed Quantitative Tightening Impact on Stocks and Gold - 22nd Sep 17
Bitcoin & Blockchain: All Hype or Part of a Financial Revolution? - 22nd Sep 17
Pensions and Debt Time Bomb In UK: £1 Trillion Crisis Looms - 22nd Sep 17
Will North Korea Boost Gold Prices? Part I - 22nd Sep 17
USDJPY Leads the way for a Resurgent Greenback - 22nd Sep 17
Day Trading Guide for Dummies - 22nd Sep 17
Short-Term Uncertainty, As Stocks Fluctuate Along Record Highs - 21st Sep 17
4 Reasons Gold is Starting to Look Attractive as Cryptocurrencies Falter - 21st Sep 17
Should Liners Invest in Shipping Software Solutions and Benefits of Using Packaged Shipping Software - 21st Sep 17
The 5 Biggest Bubbles In Markets Today - 20th Sep 17
Infographic: The Everything Bubble Is Ready to Pop - 20th Sep 17
Americans Don’t Grasp The Magnitude Of The Looming Pension Tsunami That May Hit Us Within 10 Years - 20th Sep 17
Stock Market Waiting Game... - 20th Sep 17
Precious Metals Sector is on Major Buy Signal - 20th Sep 17
US Equities Destined For Negative Returns In The Next 7 Years - 3 Assets To Invest In Instead - 20th Sep 17
Looking For the Next Big Stock? Look at Design - 20th Sep 17
Self Employed? Understanding Business Insurance - 19th Sep 17
Stock Market Bubble Fortunes - 19th Sep 17
USD/CHF – Verification of Breakout or Further Declines? - 19th Sep 17
Blockchain Tech: Don't Say You Didn't Know - 19th Sep 17
The Fed’s 2% Inflation Target Is Pointless - 19th Sep 17
How To Resolve the Korean Conundrum  - 19th Sep 17
A World Doomed to a Never Ending War - 19th Sep 17
What is Backtesting? And Why You Need Backtesting System? - 19th Sep 17

Market Oracle FREE Newsletter

3 Videos + 8 Charts = Opportunities You Need to See - Free

U.S. Unemployment, What if the BLS Labor Force Participation Rate Projections Are Wrong?

Economics / Unemployment Dec 13, 2012 - 04:03 AM GMT

By: Mike_Shedlock

Economics

On Monday, my "question of the day" was What will the unemployment rate look like for the rest of the decade?

Click on the above link to see an interactive map that lets you select the rate of job growth up to January of 2020.



The base assumptions for the interactive map regarding the noninstitutional population, the labor force, and the participation rate came from revised BLS projections by Mitra Toossi in January 2012: Labor force projections to 2020: a more slowly growing workforce

Note that the accuracy of the unemployment forecast depends on the accuracy of the assumptions.

What if the BLS is Wrong?

Today we concern ourselves with the question "What if the BLS assumptions are wrong?"

We do have to start somewhere, and the assumption for the charts below is that the BLS is right about the size of the age 16 and older noninstitutional population, but wrong regarding the participation rate and the size of the labor force.

Certainly boomer dynamics are now understood well enough that the age 16 and older noninstitutional population projections are likely to be quite accurate. How fast baby boomers retire or drop out of the labor force is certainly much harder to predict.

Definitions and Notes
  • The participation rate is the ratio of the civilian labor force to the total noninstitutionalized civilian population 16 years of age and over.
  • The noninstitutionalized civilian population consists of civilians not in prison, mental facilities, wards of the state, etc.
  • The labor force consists of those who have a job or are seeking a job, are at least 16 years old, are not serving in the military and are not institutionalized.
  • There are strict requirements on what constitutes "seeking a job". Reading want-ads or jobs on "Monster" does not count. One actually needs to apply for a job, go on an interview, or send in a resume.
  • Please see Reader Question Regarding "Dropping Out of the Workforce" for an explanation of how the BLS determines someone is actively seeking a job.
As you can see, projecting the population accurately and projecting the labor force accurately are two different things.

Starting with the assumption that Toossi is correct regarding the noninstitutionalized civilian population, I asked Doug Short at Advisor Perspectives if he would plot unemployment rates at various rates of job growth with a participation rate of 62.5 (the base Toossi model), as well as participation rates of 60.0 and 65.0.

The charts below show startling differences as to what happens if the participation rate changes in those small increments.

Model Notes

  • In the following charts CLF stands for Civilian Labor Force. 
  • CNP stands for Civilian Noninstitutional Population.
  • Participation rates assumed to move in a linear fashion towards various 2020 projected targets (65.0, 62.5, 60.0).
  • The  labor force is derived from various projected participation rates and the civilian noninstitutional population.

Unemployment Assuming Participation Rate of 62.5
z

At 125,000 jobs a month (and that is a very optimistic forecast in my opinion), the unemployment rate would slowly sink to 6.3% by 2020.

Unemployment Assuming Participation Rate of 65.0



The current participation rate is 63.6.

A mere rise in the participation rate to 65 would require 200,000 jobs every month non-stop until 2020 to get the unemployment rate to 6.1%. Needless to say, 200,000 jobs a month is not going to happen.

At 125,000 jobs a month, every month, the unemployment rate would rise to 9.9%. Is such a scenario all that unlikely?

Unemployment Assuming Participation Rate of 60.0



Should the participation rate drop to 60, it would only take 50,000 jobs a month to get the unemployment rate down to 6.5%.

How likely is that?

The participation rate was 60.2 in December of 1955. The participation rate dramatically rose starting in the mid-60's as women entered the work force en masse.

Given that people are living and working longer (the latter because they did not sufficiently save for retirement), will the participation rate drop to 60 again?

Consider what I said on May 1, 2008 in Demographics Of Jobless Claims

Ironically, older part-time workers remaining in or reentering the labor force will be cheaper to hire in many cases than younger workers. The reason is Boomers 65 and older will be covered by Medicare (as long as it lasts) and will not require as many benefits as will younger workers, especially those with families. In effect, Boomers will be competing with their children and grandchildren for jobs that in many cases do not pay living wages.

Theoretically the participation rate could drop that low but the economy will likely be horrific if it does. Moreover, should the rate fall that low, it will be at the expense of a massive rise in those on food stamps and other social safety net programs.

Table of Projected Unemployment Rates



Note the peculiarity (and mathematical impossibility) of negative unemployment rates at high levels of job creation coupled with a participation rate of 60.

All things considered, Toossi's revised model showing the participation rate slowly dropping to 62.5 seems reasonable, but a rise to 65 is not out of the question.

At a participation rate of 62.5 it will take about 100,000 jobs a month through 2020 just to hold the unemployment rate steady.

For a look ahead to 2013, please see Small Business Owners' Hiring Intent Plunges to 2008 Lows; Don't Blame Sandy or Fiscal Cliff.

By Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Click Here To Scroll Thru My Recent Post List

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management . Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

Visit Sitka Pacific's Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

I do weekly podcasts every Thursday on HoweStreet and a brief 7 minute segment on Saturday on CKNW AM 980 in Vancouver.

When not writing about stocks or the economy I spends a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at MichaelShedlock.com .

© 2012 Mike Shedlock, All Rights Reserved.

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Mike Shedlock Archive

© 2005-2017 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife