How Many People Should Be Working?

Moneybox
A blog about business and economics.
Feb. 1 2012 12:07 PM

How Many People Should Be Working?

Now and again you hit upon arguments that hinge not on the unemployment rate (the share of job-seekers who can't find a job) but the employment/population ratio (the share of people who have jobs) which are very different things. This, for example, is an optimistic unemployment rate story about the past year of the American economy:

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By contrast, the employment/population story looks quite a bit worse:

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Obviously these are both true stories and both important. But I do think it makes sense to put more weight on the unemployment story than the emp/pop story. That's primarily because of this:

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In this chart, the US employment/population ratio is in blue, the UK employment/population ratio is in yellow, and the German employment/population ratio is in red. You can see that the two English-speakign countries have basically always had higher ratios than Germany, even though the German labor market is currently booming and ours is slumping. We also see that in the seventies there was a structural US-UK gap in favor of the UK (sadly the data doesn't go back to before 1970) which reversed polarity for about 25 years, and now the US and UK have converged. These are all interesting and important fatcs. If you want to understand the GDP gap between the US and Germany, it basically all comes down to the fact that a larger quantity of Americans are engaged in market production. But while these gaps are important to understand, as both an economic and a sociological matter, it's really not clear that they're identical to cyclical labor market issues.

If the US had gone into the current recession with a low emp/pop ratio then I think a further fall would be a clear reason to run around in hair-on-fire mode but we actually entered it with an unusually low ratio. We should most certainly have our hair on fire about the millions of people who are looking for jobs and can't find them, but I don't think that a decline in the number of job-seekers per se is obviously cause for alarm.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

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