We Can’t Make Unemployment Great Again

Present employment trends look unsustainable without some sort of demographic shift or economic slowdown

By Spencer Jakab

It almost seems like old times following Friday’s jobs report, but how old exactly?

The somewhat light U.S. nonfarm payrolls growth of 157,000, even as unemployment dipped back below 4%, is a return to the not-too-hot and not-too-cold pace of recent years. Wage growth, a concern recently given so much anecdotal evidence of a tight labor market, cooled off a bit, too. That at least shouldn’t make Federal Reserve rate setters any more aggressive in their rate-raising cycle.

But the continuation of this happy stasis depends on something that is very hard to predict:

How many more people are waiting to reappear in the labor force? Participation had dropped from 66.2% in early 2008 to a generational low of 62.3% in mid-2016. Since then it has stabilized a little below 63%, helping the economy add jobs without too much in the way of wage pressure or alarmingly low unemployment.

The stabilization in the share of people willing and able to work is a matter of demographics on the one hand and the best labor market in a generation on the other. But even if participation stays at the same level for the next 12 months, a calculator from the Federal Reserve Bank of Atlanta shows that the current pace of payroll growth—it has averaged 211,000 year-to-date—would bring the unemployment rate to 3.3%, a level not seen since the early 1950s. That was a time of American industrial supremacy.

While the Trump administration is using the threat of tariffs to bring back something of that swagger, along with plenty of nostalgia about that simpler time, things just aren’t that simple.

The 1950s ended with labor-force participation far lower than today, still below 60%. The entry of women into the workforce, baby boomers reaching adulthood and, of course, immigration all fed labor-force growth in the ensuing decades. Three times as many people work today as in 1953.

Without some sort of unexpected demographic shift or economic slowdown, present trends look unsustainable. Either payroll growth will slow or wage growth will accelerate, and possibly both.

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