Tuesday, May 10, 2011

In Response to Professor Thoma and DeLong

Both Professor Thoma and DeLong are concerned about the employment to population ratio (Professor DeLong has a picture of it posted on his blog). I am not sure it is as concerning as they believe. Let me explain why.

The employment to population ration is a calculation from the Household survey, which is one of the unemployment reports issued by the BLS every month (the other is the establishment survey). The household survey provides very important data: the civilian non-institutional population, the total unemployment rate, the number of employed and the number of unemployed.

The employment to population ratio involves two numbers: the civilian non-institutional population, which comprises the following:
Included are persons 16 years of age and older residing in the 50 States and the District of Columbia who are not inmates of institutions (for example, penal and mental facilities, homes for the aged), and who are not on active duty in the Armed Forces.
Basically, this is everybody who would be eligible to work in some capacity if needed. This number makes up the denominator of the equation.

The second is an "employed person," which is defined as
Persons 16 years and over in the civilian noninstitutional population who, during the reference week, (a) did any work at all (at least 1 hour) as paid employees; worked in their own business, profession, or on their own farm, or worked 15 hours or more as unpaid workers in an enterprise operated by a member of the family; and (b) all those who were not working but who had jobs or businesses from which they were temporarily absent because of vacation, illness, bad weather, childcare problems, maternity or paternity leave, labor-management dispute, job training, or other family or personal reasons, whether or not they were paid for the time off or were seeking other jobs. Each employed person is counted only once, even if he or she holds more than one job. Excluded are persons whose only activity consisted of work around their own house (painting, repairing, or own home housework) or volunteer work for religious, charitable, and other organizations.
However, what if the overall population is aging, and more people are entering retirement than before? Before these people started to die there would be little effect on the civilian non-institutional population from these people dying (but not from births) while at the same time decreasing the number of people working. In short -- what if we were in a situation similar to the baby boomers starting retirement? That would lower the employment/population ratio in its initial stages.

What I'm wondering is this: what will be the overall, longer-term impact of the retiring baby boomers? As I've stated before, (see also this article from Marketbeat regarding a CBO study and this post from SilverOz), I firmly believe we'll continue to see weaker employment/population ratios and labor force participation rates. I should also add that the impact may not be as severe as I think it will be. But I also think the Professors Thoma and DeLong are incorrect in their concern about these numbers.

All that being said, last week I said I thought the oil market would be trading in a tight range on the same day it tanked the most in 2 years, so take this with a grain of thought.