By David Wiczer, Economist
According to the employment report numbers for March 2014, headline private sector employment finally recovered to its pre-Great Recession peak. In January 2008, there were just under 116 million employees, and the establishment survey reported just over 116 million in March.
However, this means surprisingly little in the way of concrete conclusions, though it is a nice indicator of just how far we fell in the Great Recession and that the recovery is underway. For one, there is the simple technical aspect that this particular survey is not the only measurement of employment in the economy. The plot below includes the household survey's measure of employment, which includes the public sector, and normalizes both to 100 at the previous peak. By this measure, we are not quite to our previous level.
But conceptually, what does it mean to have the same number of employed people as in 2008? There has obviously been population growth, of about 1 percent per year. If we are judging employment against a trend of 1 percent population growth, then we are far below trend. But this would be wrong.
A 1 percent population growth does not mean the labor force is growing, as demographic factors like an aging population and changing patterns of participation mean that the labor force has not been growing like it used to. The chart below adds in the civilian labor force, again normalized to be 100 at the previous peak. Now we see that the past 42 months of employment growth has very nearly caught us back up to prerecession employment when benchmarked against labor force.
Of course, we already knew this: If the relationship between employment and the labor force is near its trend, this is just the same as saying that the unemployment rate is near its long-term level. This is just definitional: The unemployment rate is 1 minus employment divided by the labor force. Though employment is not growing with the population, it is mostly keeping up with labor force growth, and the result is that unemployment is near its long-run average. We may wring our hands over employment growth, but we cannot judge a single number on its own.