Taking into account the approximately 14 million new job seekers in the future, then the December 2007 unemployment rate will not be met until April 2021! Welcome to the new normal. Of course, both of these analyses assume that the economy will immediately commence growing and generating jobs at the recovery rate seen in the 2000s, when about 166,000 jobs per month were being added. With every month that this does not happen the 2021 date will continue being pushed out further into the future. Perhaps one of the Senators today can ask a question of Bernanke just how he plans on reconciling this glaringly simple explanation for why the US economy will be underwater for a period of over a decade.
Yet what many completely have ignored up until the authors of this paper put it to paper, is that the US population is a-growing, and that factoring in the organic expansion of the US population will add millions to the labor force over the next decade: according to CBO estimates, the natural labor force growth rate is 90,000 a month. Adding this to the running future gap makes things far worse for any administration that will run on the promise of returning unemployment rate to recent levels. From the paper:
Meanwhile, the working-age population of the United States will be growing, as a steady stream of potential new workers enters the labor force each month. Returning to the December 2007 level of employment many years after that level was first achieved will still leave the economy in a jobs deficit relative to this expanded labor force.
Figure 4 incorporates the effects of this labor force growth into the analysis. The top line in the figure shows the cumulative change in the labor force, assuming that labor force growth follows CBO projections. (Based on CBO (2010), Table 2-2. This is analogous to the cumulative change in employment in the bottom half of Figures 2, 3, and 4. The CBO does not publish monthly projected increases in the labor supply, but these rates are implicit in their labor-market projections. Based on CBO projections, we assume a monthly growth in the labor force of just over 90,000 workers per month from January 2008 forward. Our projections assume that five percent of this increase will be unemployed at any given time, consistent with long-term CBO projections that the labor market will eventually return to a five percent unemployment rate.) In this figure, the point where the line for the cumulative job change crosses the line tracing the cumulative growth in the labor force marks the year and month where the economy will have made up for both the jobs lost during the recession and the intervening growth in the labor force. If we assume job creation from July 2010 forward occurs at the pace set in the 2000s expansion, the economy will not catch up with the expanded labor force until April 2021.
Another way of looking at Figure 4 is to note that the line for cumulative job change crosses the cumulative change in the labor force at the point where the employment-to-population rate returns to what it was in December 2007. The figure assumes that the economy only needs to create jobs for 95 percent of the increase in the labor force, because CBO assumes that the economy will eventually reach and maintain a five percent unemployment rate. In 2007, the employment-to-population rate for the population 16 and over was 63.0 percent, almost 1.5 percentage points below the employment-to-population rate in 2000. Our projections, therefore, set a low bar for total employment relative to a standard that would require returning to the 2000 employment rate.
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