Policy Feature Issue: Employment-Population Ratio

Policy Feature Issue: Employment-Population Ratio

Two weeks ago, the Bureau of Labor Statistics (BLS) reported that during the month of April 165,000 jobs were created and unemployment slightly decreased.[1]  Yet, as noted last week, these numbers are deceiving.  Not only does a stagnant Labor Force Participation Rate – currently at 30-year lows – demonstrate a weak job market, so does the Employment-Population Ratio (EPR).[2]  Reported at 58.6% in April, the EPR has remained static for nearly three years.  But what does the EPR represent and why is it one of the most effective measurements of economic strength?

What is the Employment-Population Ratio?

The Employment-Population Ratio is a metric that establishes the raw employment rate.  Like the Labor Force Participation Rate, the EPR is an effective measure because more accurately describes the employment status of those individuals in and out of the labor force.  Moreover, the EPR is unique in that it focuses only on the percentage of the employed working age population measured against the general population within the equivalent age range.  As a result, the EPR gives the clearest picture of how many Americans are employed and demonstrates the strength of the economy and its recovery.  A higher EPR generally reveals a healthy, growing economy with stronger growth potential and increased GDP per capita due to a larger number of working age people employed in the workforce.  Stronger economic growth translates into more jobs, greater consumer spending, and higher GDP.

Facts you need to know:

  • The Employment-Population Ratio increased from 58.5% in March to 58.6% in April.  However, the proportion of the working population in the U.S. has remained stagnant since September 2009 after a sharp decline from 62.9% in January 2008 due to the economic downturn.[3]  The current EPR is at its lowest level in nearly 30 years and has not eclipsed 60% in 49 months.  Simply put, the EPR is not improving.
  • According to the April jobs report, nearly 90 million working-age Americans are not currently in the workforce.[4]  Added to the 11.7 million Americans currently designated as unemployed, approximately 101 million working-age Americans are not employed.[5]
  • Though the retirement of the “Baby Boomers” has facilitated a downward trend in the Employment-Population Rate since 2000, an increasing area of concern is the sharp decrease in the employment rate of those aged between 25 and 34.[6]  Other than the upper Midwest, New England, and Washington, D.C. area, the Employment Rate among this age group has declined significantly since 2000.  Nearly half of the 500,000 that fell out of the labor force in March were under 35.

Why does a Pro-Growth Agenda Matter?

Unfortunately, the Employment-Population Ratio is proof again that the unemployment rate is an ineffective measure of the recovery’s strength.  Despite the unemployment rate falling by .4 percent since January, a stagnant EPR means the proportion of employed, working-age Americans has not actually increased.

This has two implications.  First, it means that job growth in the United States has barely been sufficient to keep up with population growth.  As a result, it is misleading to attribute the falling unemployment rate to strong economic performance.  Instead, it can be attributed to the large number of individuals who have completely fallen out of the workforce due to limited economic opportunity.  Second, it shows that Americans have not become more engaged in finding wage-earning employment.  This has far-reaching implications for the strength of the economy, as a large available pool of workers is necessary to facilitate growth.

[1] See Bureau of Labor Statistics: The Employment Situation – April 2013. http://www.bls.gov/news.release/pdf/empsit.pdf

[2] See http://data.bls.gov/timeseries/LNS11300000

[3] See Bureau of Labor Statistics: Labor Force Statistics from the Current Population Survey. http://data.bls.gov/timeseries/LNS12300000

[4] See Bureau of Labor Statistics: The Employment Situation – April 2013. http://www.bls.gov/news.release/pdf/empsit.pdf

[5] See Federal Reserve Bank of St. Louis: Unemployed. http://research.stlouisfed.org/fred2/series/UNEMPLOY

[6] See http://data.bls.gov/timeseries/LNS11300000; Re: Declining Youth Employment Rate See: http://economix.blogs.nytimes.com/2013/05/06/where-the-jobs-for-the-young-are-and-arent/