US unemployment has fallen close to the Fed’s “natural unemployment rate” of close to 5.5%. Does that mean that all is well?
Chart: The unemployment rate vs. Fed's measure of "natural" unemployment rate (NAIRU) over the past 20 years – pic.twitter.com/zq2fxtcHLt
— SoberLook.com (@SoberLook) July 28, 2014
Not if we consider the participation rate, plotted below as the ratio of non-farm employment to total population.
Participation peaked in 2000 at close to 0.47 (or 47%) after climbing for several decades with increased involvement of women in the workforce. But the ratio fell to 0.42 post-GFC and has only recovered to 0.435. We are still 3.5% below the high from 14 years ago.
When we focus on male employment, ages 25 to 54, we exclude several obscuring factors:
- the rising participation rate of women;
- an increasing baby-boomer retiree population; and
- changes in the student population under 25.
The chart still displays a dramatic long-term fall.