While America's mainstream media focuses on the headline U-3 unemployment rate, there is another measure of the labour market that provides us with a different, but just as meaningful, barometer of the overall health of the economy.
The employment rate reflects the portion of people in a given population that have jobs and ignores the main weakness in the definition of unemployment, the fact that the unemployed individuals that are surveyed by the Bureau of Labor Statistics have to be looking for work to fall within their narrow definition of unemployment. This means that the large contingent of discouraged workers who have given up looking for work are completely ignored. The employment rate also gives us a sense of whether job creation is keeping up with population growth since the employment rate will drop if the number of new jobs created does not meet the requirements of a growing population. It also provides us with a clear country-to-country comparison, showing us which nations have created sufficient jobs for their increasing working-age population.
The Organization for Economic Co-operation and Development (OECD) tracks employment data on a quarterly basis in the world's advanced economies and in its latest iteration, data is complete to the end of the third quarter of 2014. Overall, among OECD nations in Q3 2014, the employment rate rose by 0.1 percentage point to 65.7 percent on a quarter-over-quarter basis and was up by 0.5 percentage points on a year-over-year basis. Unfortunately, the overall OECD employment rate is still 0.8 percentage points below its level in the second quarter of 2008, right in the middle of the Great Recession.
Now, let's focus on the employment data from the United States, starting with a comparison showing how the employment situation has changed since Q2 2008 for the United States, Canada, the OECD as a whole, the Euro Area and Japan:
It is quite clear that the employment rate in the United States is well behind Canada and Japan but ahead of both Europe and the OECD as a whole, largely because the OECD includes the PIIGS debt transgressors. Unfortunately, at 68.2 percent, the U.S. employment rate is 3 percentage points below the 71.2 percent level seen in Q2 2008. This means that, despite the drop in the headline unemployment rate, American job creation is not keeping up with growth in the working age population.
Here is an alphabetical listing of most of the nations in the OECD showing the change in the employment rate from Q2 2008 to Q3 2014:
Here is a listing showing the countries in order of changes in employment level over the same timeframe from worst to best employment performance:
Out of the 24 nations, the United States came in 17th place when measured using the change in the employment rate from the depths of the Great Recession to the third quarter of 2014.
Here is some additional information on the U.S. employment picture in the third quarter of 2014 , showing the employment rate and the year-over-year change where appropriate:
Women: 62.9 percent - up 0.3 percentage points
Men: 73.6 percent - up 1.3 percentage points
Youth 15 to 24 years of age: 47.4 percent
Prime age workers 25 to 54 years of age: 76.8 percent
Older workers 55 to 64 years of age: 61.5 percent
If we want to look at a longer timeframe, here is a graph showing the employment rate for persons aged 15 to 64 for the United States, showing that we have to go all the way back to October 1984 to find employment rates that are as low as the current employment rate.
Here is a graph showing the employment rate for prime-aged workers between the ages of 25 and 54:
Once again, we have to go back to November 1985 to find an employment level for prime-age workers that is as low as what we had in December 2014.
While there is no doubt that the economy has created millions of jobs since the end of the Great Recession and that the official unemployment rate has shown marked improvement over the past five years, it is just as clear that job creation has not kept up with growth in the workforce, a situation that has resulted in the United States lagging many of its peers when measuring employment. Given that the Federal Reserve has used extraordinary measure over the past six years trying to prod the American economy back to life, it is interesting to see that the employment picture isn't quite as healthy as what it appears when we focus on the official unemployment rate.