The Single Most Accurate Indicator of Labor-Market Health

by Veronique de Rugy

On Friday, after the jobs numbers came out, I said I would post an update of what my colleague Keith Hall calls “the single most accurate indicator or labor market health”: the employment-to-population ratio. Unfortunately, it’s not looking any good:

As Hall notes:

So, what kind of labor market recovery have we seen over the past three years? As the graph shows, the answer is simple: NONE. Job growth hasn’t been strong enough to support our growing population. The employment-to-population ratio was 59.4% three years ago. It hit a 25-year low of 58.5% in October of 2009, and yet it remains at just 58.6% today.

To know what kind of job growth we need for economic recovery, we must first realize that the United States is still a growing nation. Each month, the working-age population grows by an estimated 180,000 people. Simply to support this growing population, we need to add at least 130,000 new jobs. With anything less, we fall further behind. No matter what the other economic data indicates, a true labor market recovery requires job growth strong enough to consistently raise the employment-to-population ratio. This would mean adding at least 250,000 new jobs per month, every month, for years.