How Many Jobs Do We Need To Create?

by: Greg Buhrow

The week the BLS releases unemployment statistics seems to be anticipated like a child looking forward to Christmas ... will I get a new bike or a lump of coal?

Along with that anticipation, many economic/business journalists attempt to quantify the number of new jobs necessary to decrease unemployment to more "acceptable" levels.

I was inspired by Dean Baker's September 2 article entitled "How Fast Must We Create Jobs To Keep Up With Labor Force Growth?" to examine, based on readily available data from the Congressional Budget Office (CBO) and the Bureau of Labor Statistics (BLS), how much does unemployment really have to decrease in order to reach a specified goal unemployment rate. My apologies to Mr. Baker, but I did derive a lower number than he did, which will hopefully, inspire some debate in the comments.

I have attached copies of my spreadsheets below - (click charts to expand):


The methodology used was first to determine the CBO's estimate of annual labor force growth, which is roughly 0.84% annually from 2010 to 2021.

I then took the labor force, employment and unemployment numbers from the most recent BLS release and grew the labor force monthly by the annual CBO growth rate divided by 12 and simultaneously decreased the unemployment rate by 0.05 percentage points until I reached my initial goal of 7.0% unemployment. I then continued until a 5.0% rate was attained.

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The outcome is shown in red on the spreadsheet. Even though this is a linear decrease, and things don't usually occur in a linear fashion, it does reveal that employment, in terms of absolute amounts, must consistently increase by 67 to 71 thousand faster than the labor force increases in order to attain 7.0% unemployment by March 2010. Those numbers increase to 76 thousand per month in order to reach 5.0% in the June/July 2018 time frame.

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As a corollary to the above exercise, by increasing employment by 80 thousand more than the increase in labor force, the 7.0% unemployment level is reached in the Sep/Oct 2014 period and 5.0% by Oct/Nov 2017.

And finally, in order to break-even, as the labor force increased by 107 to 114 thousand per month, employment would increase by 10 thousand per month, or roughly 9.1% of the monthly labor force increase - the current rate.

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As a reality check, since Feb 2008 - which encompasses labor reports from Jan 2008 - until Sep 2011, the average employment loss per month has been 271 thousand while unemployment has increased by 314 thousand per month - the differences being changes in the labor force.

Granted, this is a relatively simplistic but logical approach to answering the question of how many jobs need to be generated each month in order to decrease the unemployment rate. Hopefully it inspires you to question the media's assessment of the current unemployment situation and come to your own conclusion.

It is clear the economy has a "long row to hoe" before the unemployment rate can reach "acceptable" levels - but then what is acceptable ... just don't ask someone standing the unemployment line.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.