U.S. Workforce: August 2020 Update - September 11, 2020 by Jill Mislinski of Advisor Perspectives

U.S. Workforce: August 2020 Update
                                              September 11, 2020
                                                by Jill Mislinski
                                            of Advisor Perspectives
We've updated our monthly workforce analysis to include last Friday'sEmployment Report for August. The unemployment
fell to 8.4%, and the number of new nonfarm jobs (a relatively volatile number subject to extensive revisions) came in at
1.4M.

The Unemployment Rate
The closely watched headline unemployment rate is a calculation of the percentage of the Civilian Labor Force, age 16 and
older, that is currently unemployed. Let's put this metric into its historical context. The first chart below illustrates this
monthly data point since 1990.

In the latest report, this indicator dropped to10.2%. The age 16+ population increased by 185 thousand and the labor
force increased by 968 thousand. The breakdown of the growth is an increase of 3.76 million employed and a 2.8
million decrease in the unemployed. Remember, these include monthly revisions as well, so it is possible that any major
increase or decrease is due to those revisions.

Unemployment in the Prime Age Group
Let's look at the same statistic for the core workforce, ages 25-54. This cohort leaves out the employment volatility of the
high-school and college years, the lower employment of the retirement years and also the age 55-64 decade when many
in the workforce begin transitioning to retirement ... for example, two-income households that downsize into one-income
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households.

In the latest report, this indicator is at7.5% (to one decimal place), down from 9.8% the previous month. The cohort
population increased by 9 thousand and the labor force increased by 165 thousand. The breakdown of the growth is an
increase of 1.86M employed and a 1.69M decrease in the unemployed.

A More Sobering Measure
A wildcard in the two snapshots above is the volatility of the Civilian Labor Force — most notably the subset of people who
move in and out of the workforce for various reasons, not least of which is discouragement during business cycle
downturns. The chart below continues to focus on our 25-54 core cohort with a broader measure: The Labor Force
Participation Rate (LFPR). The LFPR is calculated as the Civilian Labor Force divided by the Civilian Noninstitutional
Population (i.e., not in the military or institutionalized). Because of the extreme volatility of the metric, our focus is the 12-
month moving average.

Based on the moving average, today's age 25-54 cohort would require1.4 million additional people in the labor force to
match its interim peak participation rate in 2008 and 2.7 million to match the peak rate around the turn of the century.

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Why are so many labor force participants needed for a complete LFPR recovery? When the economy is moving at full
speed, as in the late 1990s, jobs are abundant, which encourages the population on the workforce sidelines to join the
ranks of the employed.

Employment-to-Population Ratio
The next chart below is calculated as the Civilian Employed divided by the Civilian Noninstitutional Population. Again our
focus is the 12-month moving average. A significant feature of the Employment-to-Population Ratio is that it isn't affected
by the volatility of labor force participants who, for various reasons, are unemployed.

This metric began to rebound from its post-recession trough in late 2012 and surpassed its moving average ratio peak in
2007. However, as a result of the COVID-19 pandemic, the current age 25-54 cohort would require a 5.6 million participant
increase to match its mid-2000 peak.

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A Structural Change in the Economy
The charts above offer strong evidence that our economy is in the midst of a massive structural change. Two of the three
mainstream employment statistics — labor force participation and employment-to-population — document a structural
change that seems deeper than just the result of a business cycle downturn. Unemployment has essentially reached its
"natural" rate, but labor force participation and employment-to-population are both very low compared with other post-
recession periods.

In order to discount the general belief that the aging of the baby boom generation is a major factor in weak employment,
we've focused on the 25-54 age group. Also, by excluding the age 55-64 decade associated with early or pre-retirement,
we've eliminated a cohort that might include a major source of discouraged or less-determined workers.

The Growth of the Elderly Workforce
Let's close this analysis with a chart that essentially demolishes the prevailing view of our aging population as a
demographic drag on labor supply. Here is the ratio of the 65-and-over cohort as a percent of the employed civilian
population all the way back to 1948, the earliest year of government employment data. Mind you ... these people are not
only in the workforce but also actually employed.

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The 12-month moving average of elderly employment is at its historic high of 6.6% — now over double its low in the mid-
1980s. This is a trend with multiple root causes, most notably longer lifespans, the decline in private sector pensions and
frequent cases of insufficient financial planning. Another major factor is the often surprising discovery by many of the
elderly that, financial consideration aside, the "golden years of retirement" are less personally satisfying than productive
employment. Note that the growth acceleration began in the late 1990s, prior to the last two business cycle downturns (aka
"recessions").

In Conclusion...
We are clearly experiencing a structural change in employment, one that continues to have a major impact on the overall
economy. The fact this change was exacerbated by a business cycle downturn in late 2007 should not blind us to its
structural nature.

Here's our list of monthly employment updates:

ADP Employment Report

Unemployment Claims

Employment Situation Summary

Labor Market Conditions Index

Long-Term Trends by Age Group

Aging Work Force

Ratio of Part-Time and Full-Time Employment

Multiple Jobholders
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Civilian Labor Force, Unemployment Claims, and the Business Cycle

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