CBO Projects Little Change in Jobs Growth

The Congressional Budget Office (CBO), as part of its regular updates, has projected slow jobs growth through 2021 in a March 2011 report. 

The labor force has increased by about 0.8 percent per year, on average, over the past decade. That rate of growth is less than the annual rate of 1.2 percent in the 1990s and much lower than the 2.1 percent rate exhibited over the three decades before that.  Although the U.S. population has grown by about 1.1 percent per year over the  past 10 years, the labor force participation rate (the percentage of the civilian noninstitutional population age 16 years or older who are either working or actively seeking work) has declined, reversing a long-term upward trend.

The Congressional Budget Office (CBO) anticipates that during the next decade the U.S. labor force will grow at about the same rate, on average, as it did during the past decade; that is, the percentage change in 2020 from 10 years earlier will be about the same as the change was in 2010 (see graph below). The labor force is projected to increase from 153.9 million people in 2010 to 168.7 million in 2021.  The aggregate rate of participation in the labor force is projected to fall from 64.7 percent in 2010 to 63.0 percent in 2021.

In plain english, the CBO is projecting slower jobs growth than population growth for an unforeseeable period of time.  This opinion is expanded by the following statement:

Two factors are especially important to the current projections of participation in the labor force. The first is near-term economic conditions. Because of the weakened state of the economy, the labor force is currently well below its potential size; consequently, CBO expects it to grow faster than its long-term trend between now and 2016. By that time, CBO projects, the output gap will have closed (that is, the economy will be operating at its full potential), and the actual labor force will be about equal to the potential labor force.  After 2016, CBO expects the growth of the labor force to equal, on average, the growth of the potential labor force, and it does not attempt to forecast the timing of subsequent business cycles. The second factor is the impending retirement of the baby-boom generation (people who were born between 1946 and 1964), which will cause the potential labor force participation rate to decline throughout the next decade.  In CBO’s estimates, the effect of the second factor outweighs the first, pushing down the labor force participation rate, on balance, over the next decade.

Again, translating the CBO forecast – the CBO believes that the economy will come up to potential by 2016.  Econintersect warns that the historical relationship between economic potential and full employment has not been operative since 2000.  This makes the near term forecast  of the CBO too optimistic.

The reasons that employment has disconnected from economic potential range from globalization (ability to produce for the USA market from anywhere in the world) to productivity improvements to regulation.  Whatever your belief, what cannot be argued is the disconnect.

The second factor for poor employment is the baby boomer retirement.  It is a non-controversial economic principal that retirees spend less then the employed segment of the population.

The participation rate is the percentage of the civilian noninstitutional population age 16 years or older that is either working or actively seeking work.

Low jobs growth is a significant social issue.  It also has economic impacts relative to consumerism.

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Exporting Jobs  by John Lounsbury

USA Trade Deficit Exports 1.3 million Jobs  by Steven Hansen

Non-Farm Business Productivty Improves in 2010 – Is This Bad News?  by Steven Hansen

U.S. Had to Export Jobs for Demographic Reasons  by John B. Lounsbury

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