Best of the Week
Most Popular
1.U.S. Housing Bull Market Over? House Prices Trend Forecast Current State - Nadeem_Walayat
2.The Coming U.S. Economic Collapse Will Trigger a Revolution - Harry_Dent
3. Stock Market Crash a Historical Pattern? - Wim_Grommen
4.Global Panic - U.S. Federal Government Stockpiling Ammo – Here’s What We’re Going to Do - Shah Gilani
5.AI, Robotics, and the Future of Jobs - Aaron Smith
6.This is Your Economic Recovery With and Without Drugs - James_Quinn
7.Gold and Silver Price Getting Set To Explode Higher - Austin_Galt
8.The Something for Nothing Society - Lifecycle of Bureaucracy - Ty_Andros
9.Another Interesting Stock Market Juncture - Tony_Caldaro
10.Inflation vs the Deflationary Straw Man - Gary_Tanashian
Last 5 days
Independent Scotland Currency, Plan A, B, C or D - British or Scottish Pound? - 2nd Sep 14
Gold and Silver Price A Critical Juncture - 2nd Sep 14
Gold and Silver Precious Metals Complex Contradiction and Potential - 2nd Sep 14
France And The Long-Gone Thatcher Moment - 2nd Sep 14
Stock Market Approaching An Important High? - 2nd Sep 14
Gold, Silver Price Summer Doldrums Coming to an End - 2nd Sep 14
The Ultimate Demise Of The Euro Union - 1st Sep 14
Palladium Price Breaks Multi-Year High Over $900 - 1st Sep 14
When Complexity Becomes Chaos - 1st Sep 14
Designer War By Default - 1st Sep 14
Islamic State or Russia? Ten Key Questions Towards Pragmatism - 1st Sep 14
Mixed Emotions for the Gold Market - 1st Sep 14
These Clowns Are Dragging Us Into War with Russia - 1st Sep 14
Marx And The Capitalist Cancer Of Overproduction - 1st Sep 14
Scottish Banks Salivating at the Prospects for an Independent Scotland of 6 Million Debt Slaves - 1st Sep 14
Small Man Europe Is Now In “Effective State Of War” With Russia - 31st Aug 14
The Unintended Blowback Of False Flags - 31st Aug 14
Tesco Supermarket Death Spiral Latest Profits Warning and Dividend Slashed - 31st Aug 14
Dow, Gold and Silver - A Last Stand, A Fake Out And A Surge - 31st Aug 14
If U.S. Consumers are so Confident Why aren't They Spending? - 31st Aug 14
Scotland Independence House Prices Crash, Deflationary Debt Death Spiral - 31st Aug 14
Obama’s “Catastrophic Defeat” in Ukraine - 30th Aug 14
Stock Market Inflection Point Approaching - 30th Aug 14
Gold And Silver - Elite's NWO Losing Traction. Expect More War - 30th Aug 14
Corporations Join Droves of Americans Renouncing US Citizenship - 30th Aug 14
Peter Schiff U.S. Housing Market, House Prices Bubble Warning - 30th Aug 14
Russia, Ukraine War - It’s Time to Play the “Gazprom Card” - 29th Aug 14
The One Tech Stock Investment You Should Never Sell - 29th Aug 14
Bitcoin Price $500 as Current Downside Barrier - 29th Aug 14
Don't Get Ruined by These 10 Popular Stock Market Investment Myths - 29th Aug 14
Low Cost Transcontinental Gold - 29th Aug 14
Gold Bullish Central Banks Should Give Money Directly To The People - Helicopter Janet? - 29th Aug 14
US House Prices Bull Market Over? Trend Forecast Video - 29th Aug 14
The Fed Meeting at Jackson Hole Exposed Yellen’s Greatest Weakness - 29th Aug 14
AAPL Apple Stock About To Get sMACked - 29th Aug 14
A History of Unlimited Money: Learn From It or Repeat Its Mistakes - 29th Aug 14
How You Can Play to Win When Market Makers Are Calling the Shots - 28th Aug 14
EU Gas Supply Is In Real And Imminent Danger - 28th Aug 14
Central Banks at the Root of Evil - 28th Aug 14
European Bond Market: Bubble of all Bubbles! - 28th Aug 14
Employers Aren’t Just Whining: The “Skills Gap” Is Real - 28th Aug 14
The ISIS Menace - Just What We Need, Another War - 27th Aug 14
The Risky Business of Methane-Rich “Fire Ice” - 27th Aug 14
CFR Recommends Policy Shift that is Very Bullish for Gold - 27th Aug 14
Ukraine Standoff Signals Global Power Shift - 27th Aug 14
Stock Market Panic Decline Begins - 27th Aug 14
The Monopoly of the Government Education Cartel - 27th Aug 14
How to Invest in Silver Today for Double-Digit Gains - 27th Aug 14
The Big Solar Energy Breakthrough We've Been Waiting For - 27th Aug 14
U.S. Empire’s Bumpy Ride - 27th Aug 14
Gold Market and the Interest Rate Trap - 27th Aug 14
Stock Market Staring Into the Great Abyss - 27th Aug 14
A Look at the Coming 30-year Inflation Cycle - 27th Aug 14
Forex Trading - Will USD/CHF Rally Above 0.9200? - 27th Aug 14
Europe’s Depressing Economy Dog Days of Summer - 27th Aug 14
How The Coming Silver Price Bubble Will Develop - 26th Aug 14
A Nation of Shopkeepers - Supply-Side (Voodoo) Economics? - 26th Aug 14
Stock Market Bear Tracks Abound In Wall Street - 26th Aug 14
65,000 U.S. Marines Hold up a Mirror to the Economy - 26th Aug 14
Bitcoin Market Provides Clues for Investors - 26th Aug 14
The Key to Trading Success - 26th Aug 14
Will The US Succeed in Breaking Russia to Maintain Dollar Hegemony?... - 26th Aug 14
Even Mainstream Academia Worried about Massive Bubbles in Markets - 26th Aug 14
Iraq and Syria Follow Lebanon's Precedent - 26th Aug 14
Colonization by Bankruptcy: The High-stakes Chess Match for Argentina - 26th Aug 14
Dow Stock Index On The Cusp - 26th Aug 14
Prohibition Laws and Agency Regulations - 26th Aug 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

The Biggest lie in Stock Market History Revealed

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

© 2005-2014 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

Free Report - Financial Markets 2014