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Monday, September 13, 2010

FRBSF Economic Letter: Labor Force Participation and the Future Path of Unemployment

How many jobs do we need to create each month on average in order to bring the unemployment rate down to 8% by June 2012? Uncertainty about how the labor force participation rate will change between now and then lead to uncertainty in this number, but the estimates range from 208,000 to 294,000 jobs per month (source):

Figure 1
Job creation needed per month

Assuming 8% unemployment in June 2012Job creation needed per month; Assuming 8% unemployment in June 2012
Source: Sources: BLS, CBO, SSA, authors' calculations.

If the SSA is right and labor force participation falls to 64.6% in 2012, we will need to create an average of 208,000 jobs per month over the over the 22 months beginning in September 2010 to bring the unemployment rate down to 8% in June 2012. But if the labor force participation rate rises to 65.5%, as the BLS predicts, we will need to add 294,000 jobs per month in order to reach that level.

An 8% unemployment rate 22 months from now would be an improvement, but nothing to write home about. An 8% rare is still fairly elevated and we should try to do better. But given the job creation rates we've seen lately -- the numbers are far short of even the lowest estimate of what is needed to hit the 8% target -- and the lack of any serious attempts from Congress to spur additional job creation, we'll be lucky to achieve even that.

    Posted by on Monday, September 13, 2010 at 06:02 PM in Economics, Unemployment | Permalink  Comments (23)


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