Fed chairman Ben Bernanke estimated it takes about 125,000 jobs per month to keep up with birthrate and immigration. I think because of boomer retirements, the number is much lower, say 75,000 jobs a month.
However, there has been almost no increase in the labor pool for the past four years as noted in Reader Questions: Who is "Not in Labor Force"? Who is Counted as Unemployed?
Civilian Labor Force
Notice how the labor force did not skip a beat in prior recessions. The housing bust and boomer demographics changed the trend in a dramatic way.
Civilian Labor Force Since 2000
Labor Force Barely Increased in Nearly Four Years
The labor force peaked at 154,875,000 in October of 2008, exactly on the cusp of the great recession.
The current labor force is 155,013,0000 barely above what it was nearly four years ago.
At 75,000 per month since October 2008, the labor force should have risen by 3,450,000 not 138,000. The result is a huge unwarranted drop in the stated unemployment rate.
Labor Pool Math
The above chart is courtesy of my friend Tim Wallace. I asked for a chart that shows what the unemployment rate would look like at various demographic labor pool growth rates, starting January 1, 2008.
The chart is not seasonally adjusted. It compares July 2012 to the same month in prior years.
At 100,000 per month, the unemployment rate would be over 11%. The unemployment rate would be even higher if Ben Bernanke was correct. If my estimate of 75,000 per month was correct, the unemployment rate would be about 10.5%.
At a meager 25,000 per month growth rate, the unemployment rate would be over 9.0%.
The only reason the unemployment rate is artificially low because in the last year alone In the last year, those "not" in the labor force rose by a staggering 2,027,000.
Some of that is "forced retirement", a term I coined to describe those who want a job and need a job but retired because there are no jobs and they expired all of their unemployment benefits.
Another reason for the shrinking labor pool is disability fraud, a subject I have written about numerous times.
- Trends in Duration of U.S. Unemployment
- 2.2 Million Go On Disability Since Mid-2010; Fraud Explains Falling Unemployment Rate; Will Higher Disability Taxes Fix the Problem?
- TrimTabs on Debt and Disability Claims: How Much Debt Does it Take to Generate $1 in GDP? Disability Fraud vs. Expiring Unemployment Benefits Revisited
- Bernanke Puzzled Over Jobs, Cites Okun's Law; Six Things Bernanke is Clueless About
Moreover, please note that 100% of U.S. Jobs Added Since 2010 Have Been Self-Employment, Contractor, or Other Jobs Without Unemployment Insurance Benefits
Mike "Mish" Shedlock
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