So what measurement should we use to determine the health of the labor market? An honest assessment would look at the number of jobs created, not the number of people who give up looking for work, and compare that to the growth in population. In a recent article, we proposed a more realistic and informative metric which we call the “Growth Ratio”. http://townhall.com/columnists/andrewpuzder/2013/04/05/jobs-numbers-demystified-n1558261.
The Growth Ratio is simply the ratio of the year-over-year growth in household employment divided by the year-over-year growth in the non-institutional population—that is, the number of people who could be in the labor force. This fraction tells us whether job creation is keeping pace with, running ahead of, or falling behind population growth. A Growth Ratio equal to one indicates that employment grew as fast as the population; under those circumstances, all else being equal, the unemployment rate should remain unchanged.
A Growth Ratio above one indicates job growth in excess of population growth, which should reduce the number of unemployed people in the labor force and result in a lower unemployment rate. A ratio between zero and one indicates that, while employment grew, it grew slower than the population. A negative ratio indicates that employment fell over the time period. To produce a true economic recovery that would meaningfully reduce real unemployment, employment growth should be above one, which means it is greater than population growth.
What does the Growth Ratio show about the March jobs report? The ratio clocked in at 0.90 in March, showing that year-over-year growth in employment failed to keep pace with year-over-year growth in the labor-eligible population. In the 31 months since the Growth Ratio turned positive, the average ratio has been 0.95, indicating that, on average, yearly employment growth has failed to beat yearly population growth during the “recovery” on a monthly basis.
In other words, employment growth has failed to keep pace with population growth. The labor market is losing ground. Nor can the dismal March jobs report be blamed on the sequester. While March’s Growth Ratio was lower than in recent months, it is not an outlier when viewed in light of the overall trend since the recession officially ended — which clearly shows that employment growth has hovered around population growth.
The official unemployment rate has hidden this fact well. Ever since October 2009, the rate has been falling, not because the US is adding jobs, but because fewer people are actively looking for work. Many of them want jobs, but simply give up in frustration after repeated but failed efforts to find one. This takes them out of the labor force and drives down the official unemployment rate. In fact, the BLS reported that in March there were 6,722,000 people out of work who “Want a Job Now,” that it excluded from the ranks of the unemployed. In the real world, these people are unemployed, but in the government’s world, they have vanished from the labor force. Adding them back into the labor force and therefore the ranks of the unemployed produces an unemployment rate of 11.4%.
The punch-line of the March jobs report is that Americans should no longer consider the “official” unemployment rate as a reliable measure of the opportunities actually available (or unavailable) to working age people. The “Growth Ratio” is a truer measure, and it shows, at best, a tepid recovery with a stagnant labor market. Welcome to the Obama economy.
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