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The Arithmetic of Job Creation: Why 10% is the New 5%

9 August 2010

According to World Bank data, the rate of net population growth in the U. S. in 2008 was 0.915% per year.  Assuming a national population on the order of 300,000,000, that means each month we add 228,750 people:

(0.915/100) * 300,000,000 * (1 yr/12 mos) = 228,750 people/month

For grins, although 0.915% is historically low, let’s be conservative and say that’s a constant growth rate, meaning next year we will add

300,228,750 * (0.915/100) * (1/12) = 228,924

people per month to the population.  To be even more conservative, and yet realistic given the history since 1974, let’s assume that the actual growth rate is constant in absolute terms at 220,000/month for the foreseeable future.  That means that we’ve had about 220,000 new people per month in the job-needing pipeline for long enough for us to make our piont.

Let’s have some fun and make another hyperconservative assumption:  half of those people are female, and we want them to stay barefoot and pregnant instead of entering the public workforce.  Our number is now down to 110,000 myn/month.

What that means is, obviously, the American economy must create at least 110,000 NEW, NET jobs per month just to absorb just the population growth without increasing gross unemployment.

If, however, we wish to maintain unemployment at current levels (i. e., no change in the unemployment RATE), the number of jobs we need to create per month depends on what today’s unemployment rate is.  (Obviously.)  So we consult the U. S. Bureau of Labor Statistics and retrieve historical figures for the total civilian work force (data series LNU01000000), and we find that the number is on the order of 155,000,000 nationally.  Let’s continue to be conservative and inflate this number to 160,000,000.

  1. If the current unemployment rate is 9.5%, that means that 0.095 * 160,000,000 = 15,200,000 people are unemployed.
  2. If the current unemployment rate were 5%, that would mean that 8,000,000 people are unemployed.

Now recall that we’re adding 110,000 to the civilian work force each month.  Taking the most recent estimate of NET job creation – 71,000 per month in July – we can compute what next month’s unemployment figure will be.  In scenario 1, the present reality more or less, that means that next month our unemployment rate will be

UR(1) = 100% – [{(160,000,000 – 15,200,000) + 71,000}/(160,000,000 + 110,000)] = 9.51783%

Similarly, in scenario 2, next month’s unemployment rate will be

UR(2) = 100% – [{(160,000,000 – 8,000,000) + 71,000}/(160,000,000 + 110,000)] = 5.02092%

The unemployment rate has increased in each case.  (We didn’t generate enough jobs to absorb the kids growing up in the employment pipeline.)  But what if we ask a different question:  “How many jobs per month have to be created in order to keep the unemployment rate steady, to break even?”  (We don’t have to add the full 110,000 jobs per month to keep the unemployment rate stationary unless we have 100% employment.)  Here’s the sinister thing.

In scenario 1, we have to add 99,550 jobs per month to stay steady at 9.50% unemployment.

In scenario 2, we have to add 104,500 jobs per month to stay steady at 5.00% unemployment…nearly 5,000 jobs per month MORE than in scenario 1.  (And note the number of digits:  scenario 1 only requires a 5-digit number to stay afloat, whereas scenario 2 requires a six-digit monthly increase to keep the rate steady at 5%.)

Which bar is higher for the Obama Administration vis-a-vis an American public so numbed by the withering onslaught of numbers from political podiums that we can only muster the energy to look at the number of digits, not their actual values.  (Effectively, because of our exhaustion with government figures, we now think in logarithms.  Time was, an annual budget whose logarithm was 10.x was considered normal; now it’s 12.x, and approaching 13.x.  We are defining deviancy UP in logarithmic terms!)

It turns out that because the statistic most frequently reported in the newspaper – the subject of breathless anticipation among the chattering mainstream media – is the monthly jobs report, which gives us the net jobs added in absolute terms.  And if unemployment is higher, the American economy does not have to add as many jobs per month to keep the RATE from increasing.  So by that measure – and it’s the most popular measure at present – the Obama Administration is better off defining 10% unemployment as the new normal because, for the time being, monthly job creation only requires 5 digits to keep up with population growth.  If unemployment were 5%, monthly job creation would have to be 6 digits to stay even.

But qb’s just a cynical partisan, of course.

qb

P. S.  Incidentally, we would have to average a net monthly job creation of 370,000/mo to get us back to 5% unemployment by the time the 2012 election rolls around 27 months from now.  Anybody want to hazard a guess as to whether or not the current regime’s policies will get us there?

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3 Comments leave one →
  1. 9 August 2010 1:02 pm

    Forget the numbers, qb. How about this, ahem, modest proposal (with apologies to Jonathan Swift and Sarah Palin and her death panels)? Regardless of how you lose your job, you get shot at dawn or noon or sunset and then those who are underemployed can kill and eat your family members serving you as the main course. Some risk-taking entrepreneur might even set up a business and call it: “U-R Cooked” or “Neighborly Bar-B-Que” Website: http://www.eatyourunemployed.com. No doubt someone will worry about endangered species. But, hey, we will quickly eliminate unemployment. Eggs and omlettes.

    Blessings!

  2. 9 August 2010 1:07 pm

    Seriously, do you include children in your population growth calculations? My guess is that you are actually looking at about 70,000 monthly.

    Blessings!

  3. 9 August 2010 1:51 pm

    RE: the children, I explicitly assumed that the population growth has been constant since roughly 1974 so that I can treat all of the population growth as being of employable age, i. e., a pipeline of babies. That is conservative with respect to the kind of hypothesis I’m developing; if the assumption is wrong, that probably strengthens my argument instead of weakening it.

    qb

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