Tag Archives: unemployment lfpr

College and the job market

Can a poor job market cause rising college attendance?

Of course. Especially when financial aid is easy to find. If someone can’t find a job but can easily finance an education that improves their value in the job market, they’ll be more likely (on the margin) to go back to school and put off their job search until later.

But to what extent does rising college attendance indicate a poor job market for young and young-ish people? For example, is the rise in college attendance over the past seven years mostly due to a poor job market for 18-30-year olds?

I think that could definitely be true, but the key word is “mostly.” We’d have to know what percentage of students wouldn’t have gone to school had they been able to more easily find work instead. Do these students account for more than 50 percent of recent increases in college attendance? I doubt it, but I really don’t know.

I do know, though, that the number of people attending college has steadily increased over time. And I have every reason to believe that a long-term upward trend in per capita GDP (which exists) should correlate with a long-term upward trend in the number of people attending college. I’ll call this the “natural” rise in college attendance over time.

The key to knowing whether a poor job market for young and young-ish people since the 2008 financial crisis is a big reason for increased college attendance is finding some way to subtract the portion of the increase caused by this “natural” upward trend from the total increase in attendance. The number we’re left with should theoretically equal the number of students who would rather be working than in school, but could not find work and so chose school instead.

But even that is pretty iffy, because whether one wants to be in school or not depends, in part, on the differences in the type of work available to degree- and non-degree holders, which in turn is partly determined by the health of the labor market. It’s all very confusing.

Regardless, this has implications for discussions about the true value of figures like the unemployment rate, which I’ve seen attacked lately. The unemployment rate doesn’t include people who’ve quit looking for work as “unemployed”, so the story goes, and thus is really just a big lie.

In more precise terms, it’s the drop in the labor force participation rate (LFPR) that is not well-reflected in the unemployment rate. In fact, dropping out of the labor force entirely (that is, unemployed people quitting their job searches) lowers the unemployment rate, ceteris paribus, by removing people from the equation altogether. For example, if the labor force includes five unemployed people and 105 people total, those five people dropping out of the labor force would leave 100 people employed and 100 in the labor force—a zero percent unemployment rate.

But a falling LFPR doesn’t happen only when people get so discouraged that they quit looking for work and “drop out of the labor force.” It can happen for several reasons, of which a “natural” rise in college attendance rates is one. I discuss other reasons, like an aging population and planned early retirement, here.

All this to say, things like rising college attendance and a falling LFPR cannot, in themselves, be considered a gauge for the health of the labor market. These metrics are influenced by a variety of factors, and we shouldn’t necessarily be suspicious when they move one way or another. I do think college attendance is higher and LFPR is lower than levels we’d see if we hadn’t had a recession, but knowing whether the portion of these figures’ movement directly attributable to a poor job market is significant is a matter of subtracting their “natural” movement from the total movement—a difficult task, indeed.

God Blessed Texas

Here’s an interesting chart from AEI‘s Mark Perry.

Texas is solely responsible for the 1.169 million net increase in total U.S. employment in the seven year period between December 2007 and December 2014.

Another highlight from the piece:

The other 49 states and the District of Columbia together employ about 275,000 fewer Americans than at the start of the recession seven years ago, while the Lone Star State has added more than 1.25 million payroll jobs and more than 190,000 non-payroll jobs (primarily self-employed and farm workers).

Perry (Mark, not Rick) goes on to explain that while the oil and gas boom has certainly boosted job growth in Texas, job gains has been strong across several sectors of the state’s economy—especially construction (more permits for single-family homes were issued last year in the city of Houston alone than in the entire state of California).

God blessed Texas.

Jobs report gains, LFPR loses

MarketWatch is reporting that the U.S. economy added 288,000 jobs in April. Numbers for February and March were both adjusted up based on new data. The unemployment rate is now 6.3% — lowest since September 2008.

I’ve written before that the Fed had turned reports like this into red flags for markets. Investors feared an end to stimulus more than they rejoiced at news of added jobs. But I expect things to be different this time around, as the Fed dropped their 6.5 percent unemployment threshold (which signaled the beginning of taper) in mid-March, choosing instead to use a more holistic and “qualitative” view of unemployment to gauge the health of the economy and signal an end to stimulus.

Today’s jobs report also revealed that the labor-force participation rate (LFPR) has dropped to a 35-year low. Business Insider’s Sam Ro writes, “Bottom line, the drop in unemployment is not just about job creation; it’s also about fewer people looking for work.”

I’m not saying the economy isn’t actually improving or that today’s good news is nothing to be exciting about. I just want to emphasize the importance of examining other associated metrics when the unemployment rate is published. After all, if the LFPR falls ceteris paribus, the unemployment rate will decrease despite a net decrease in the number of Americans who are employed.