A Soviet Style Labor Purge Approach to Full Employment

This week the unemployment level fell to 5.5%. This is within the full employment range. However, behind the scenes, there seems to be a purge of the labor force, which will result in full employment numbers.

While there are some labor facts that are well known, there are some other behind-the-scenes numbers that are not, and show more sharply, the precarious nature of the labor force. Some of the well-known facts are that those who are working part time because they couldn’t find any other job is still the highest it’s ever been in the history of the measure. The Labor Force Participation rate is at its lowest level since 1978. And there are still more unemployed people than there are available jobs.

Some of the behind-the-scenes data includes the civilian population ratio: those people in the labor force that actually have a job, which has been stuck in the 59% range for the last 8 months, and not near its pre-recession level.

Another behind-the-scenes number is this: the actual labor force; those people ages 16 and over has been very volatile. There should be some volatility, as people become disabled, people retire, and new people come into the labor force just by the very act of turning 16. This is more variability than simple demographics, however.

The change in labor force (actual people) from the previous month of the previous year, which filters for residual causes, shows some interesting results.

Variance = 0.547
Standard Deviation = 0.299
Mean = 0.1907%
Coefficient of Variation = 2.867

Even with oversimplification statistically, this is a very high CV considering the variance and mean. Graphically, it looks something like this:

Labor Force Pop

It would appear that there was a Soviet Style purge of the labor force (-.75) in March of 2013, followed by another purge (-1.1) at the end of 2013. Regardless of not being able to repopulate labor since the “great purge of 2013,” there’s a lot of volatility in there. And if history repeats itself, as it often does in economics, then we are due for another “purge.”

The other behind-the-scenes data point is this: the true total number of people looking for a job versus the actual job openings.

Again, we all know that the number of job openings is far smaller than the number of people looking for a job, based in the standard unemployment rate. When we add in the number of people working part time who would rather work full time, the number of people looking for a job jumps by 2.5 million-ish.

Number of unemployed (UNRATE) = 8,635,100
Number of part time employed for economic reasons = 2,426,000
Total Job Seekers = 11,061,100
Total number of job openings (12/2014) = 5,028,000

It looks graphically like this:

JOLTS

While the number of job openings has risen, it hasn’t risen very rapidly. On this recovery trend, it could be another decade before there are enough jobs to go around, assuming that people drop out of the labor force at the same trend rate.

These are the total number of job seekers, not just the unemployed, although that’s factored in. While the total number of job seekers has been going down, it’s been going down for all the wrong reasons; people quitting looking all together. When we compare this to the “great purge of 2013,” along with the recent drop in the labor force population as a whole, the drop in the total number of job seekers matches. How much does it match? R2 = 0.784. That’s a close match.

Just like in the theory that the beatings will continue until morale improves, the Soviet style labor purge will continue until there is full employment.

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This entry was posted in Demographics, Economics, Labor, Macroeconomics, Sociology, Statistics. Bookmark the permalink.

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