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Policy: Economy

The week ahead in economics: Jobs recovery, Davos and the Fed

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Jobs,Labor,PennAve,Joseph Lawler,Economy,Federal Reserve,Unemployment

There's no doubt that the labor market recovery has been too weak.

January's jobs report was poor, showing just 74,000 jobs created in December. But the longer view is even grimmer: There were 138 million workers on U.S. payrolls at the official start of the recession in December 2007, according to the Bureau of Labor Statistics' establishment survey. Six years later, that number is just 137 million. The picture is even worse in the household survey, which shows a drop of 1.5 million jobs over the same time frame.

Even though the unemployment rate has come down significantly, from 10 percent at its highest to the current 6.7 percent, workers have been fleeing the labor force. The labor force participation rate stands at 62.8 percent, the lowest it's been since 1977.

The result? America is 7.9 million jobs short of where it would be if the economy were healthy, by the calculations of the Economic Policy Institute, a liberal Washington think tank.

Those facts demonstrate that the labor market is not performing, and nowhere near healed. Nevertheless, it is getting better.

The decline in labor force participation is largely driven by the weakness of the recovery, but not entirely. In an analysis of historical trends between labor force participation and the employment to population ratio, researchers from the Federal Reserve Bank of Boston found in 2013 that structural forces, such as the aging of the baby boomers and increasing role of disability benefits, also have played a role in depressing labor force participation.

Shigeru Fujita of the Philadelphia Fed looked into survey responses of those who had dropped out of the labor force, and learned that while increasing numbers of retirees weren't much of a factor early on in the recession, the "decline in the participation rate since the first quarter of 2012 is entirely accounted for by increases in nonparticipation due to retirement.”



As the recovery continues, and especially if it strengthens, many of those who quit looking for work because openings have been scarce will return to the hunt for jobs.

That trend can already be seen in the steady decline in the BLS' measures of underemployment. The U-6 rate of unemployment has been coming down steadily along with the headline unemployment rate, from over 17 percent in 2010 to 13.1 percent today.



The U-6 rate includes "persons marginally attached to the labor force," defined as "those who currently are neither working nor looking for work but indicate that they want and are available for a job and have looked for work sometime in the past 12 months" — in other words, those most in danger of falling out altogether. That group has shrunk over the past few years.

One suggestive indirect measure of the health of the labor market is the rate at which workers are quitting. If workers are willing to quit, it suggests that they are confident about finding another position rather than worried about conditions in their own area.

The quits rate has been moving upward slowly but steadily since bottoming out in 2009, from 1.2 percent then to 1.8 percent in the most recent reading.



this improvement indicates that whatever else is going on in the background, Americans are feeling more confident about the economy and the jobs outlook.

Despite the recent bad news about labor force participation, the jobs situation is getting better, if too slowly.

For the week ahead:

Markets and the federal government will be closed Monday for Martin Luther King, Jr. Day. Congress will be out of session all week.

Treasury Secretary Jack Lew and other top U.S. administrators will travel to Davos, Switzerland, for the World Economic Forum starting Tuesday.

On Thursday, the National Association of Realtors will release data on sales of existing homes for December, with 4.9 million expected, according to Econoday.

The Federal Reserve may release transcripts from its meetings during 2008. The transcripts will show the decisions that Chairman Ben Bernanke and other Fed officials struggled with in 2008 as the subprime mortgage crisis unfolded and brought down Wall Street, prompting Bernanke to press Congress to pass the TARP bailout, extend trillions of dollars of credit to banks through the Fed's discount window and other programs, and lower short-term interest rates all the way to zero.

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