Friday, November 7, 2014

Prime-Age Workers in America - The Employment-to-Population Dilemma

While the headline U-3 unemployment rate has shown improvements since the Great Recession, in large part, unemployment has fallen because job-seekers are giving up hope and leaving the labor force.

According to David Cooper at the Economic Policy Institute, the best measure of labor market health is the prime-age (i.e. 25 to 54 years of age) employment-to-population ratio or EPOP.  This measure provides us with the percentage of prime-age workers that are employed.  By using a specific age range, we eliminate the problem of changes in the size of the workforce that are related to younger adults leaving the workforce to attend school or older adults retiring from the workforce.

Mr. Cooper goes on to look at the changes in the difference in the prime-age employment-to-population ratio for each state from the third quarter of 2007 when the Great Recession was just around the corner to the third quarter of 2014.  Here is a bar graph showing the results:

You will notice that, as a whole, the United States saw the prime-age EPOP ratio drop by 3 percentage points between 2007 and 2014.  Some states saw a significant decline in the percentage of prime-age adults that were working over the seven year time span; Georgia, Kentucky and New Mexico saw their EPOP ratio drop by 7 percentage points or more.  In addition, Arkansas, Rhode Island, Alabama, Nevada and Hawaii saw their EPOP ratio drop by 5 percentage points or more.  Even the states with relatively healthy oil-driven economies like Texas and North Dakota saw small declines, seeing drops of 0.7 and 1.6 percentage points respectively.

If the economy was in normal mode, one would expect that the prime-age employment-to-population ratio would increase.  Looking at the graphic, you will note that there was an increase in the share of prime-age adults that were working in only two states; Oklahoma and Michigan.  Unfortunately, in both cases, the population of 25 to 54 year olds had decreased in both states; by 2.8 percent in Oklahoma and by 12.5 percent in Michigan over the seven year period.  In other words, the only two states that saw an improvement in the percentage of adults that were working between 2007 and 2014 were because the number of adults in both states declined.  It had absolutely nothing to do with job creation.

Let's switch gears for a moment and take a quick look at the employment-to-population ratios for all OECD nations for workers ranging from 15 to 64, 15 to 24 and 25 to 54 years of age to help us put the American situation into perspective:

If you look across the line showing the data for the United States, between 2007 and 2014 you'll notice that the employment-to-population rate dropped by 4.4 percentage points for those aged 15 to 64, by 6.6 percentage points for those aged 15 to 24 and by 4 percentage points for those aged 25 to 54.  By comparison, over the same timeframe, on average, OECD nations saw their employment-to-population rate drop by only 1.2 percentage points for those aged 15 to 64, by 3.5 percentage points for those aged 15 to 24 and by only 1.4 percentage points for those aged 25 to 54.  This tells us that the United States economy hasn't done nearly as well at creating jobs, particularly for its prime-age adults, as its OECD peers.  Some nations, including Korea, Japan, Israel, Austria, Chile and Germany (among others) have actually seen their prime-age employment-to-population ratio rise over the years between 2007 and 2013, a sign of a healthy job market.

Obviously, the rate of job creation in the United States simply isn't keeping up with the growing demand for those jobs by Americans who fall between the ages of 25 and 54.  While the employment-to-population ratio doesn't provide us with any indication of the quality of jobs being created, it is apparent that, despite the best efforts of central bankers, growth in the number of prime-age workers is outstripping the economy's ability to create employment of any kind.


  1. In your statistics, I assume those "dropping out of the labor force" are not included?
    Don Levit

  2. Hi Don

    They are not included. Only those who are employed are included.