Yellen’s new normal of less than 100,000 new jobs a month


By Robert Romano



“To simply provide jobs for those who are newly entering the labor force probably requires under 100,000 jobs per month.”

That was Federal Reserve Chairman Janet Yellen testifying on Dec. 3 in front of Congress’ Joint Economic Committee, telling lawmakers why, demographically, nobody should really expect the economy to produce nearly as many jobs as it once did in decades past.

As recently as 2010, the expectation to keep up with the growth of the working age population was much higher, for example, by former U.S. Department of Labor Secretary Robert Reich in an oped for the Wall Street Journal, writing of “the 150,000 [jobs] needed to keep up with the growth of the U.S. population.”

It is a familiar story, that of America’s aging workforce, but less focused on has been the impact of the slowing rate of growth of the working age population — that is, those aged 16 to 64.

In the past year, the population of 16 to 64 year olds has only increased an average 109,750 a month, according to data compiled by the Bureau of Labor Statistics. Comparatively, the average from 1980 to 1981 had it increasing 198,750.

That is how profound not only the shifting demographics has been, but also declining fertility in the U.S. The fact is, Americans — and the rest of the world for that matter — are having far fewer children than they once did, and now it’s turning up in the labor force.

So, Yellen is actually correct. To keep up with population replacement — since the employment population ratio is always less than 100 percent — will most certainly be under 100,000 jobs per month.

More like 78,000, to be precise, if one assumes 2007’s 71.8 percent employment-population ratio for 16 to 64 years.

Going forward, that number will drop even further as the size of the working age population continues to flat line.

It raises an interesting question, however, about those Baby Boomers headed into retirement, namely, who will replace them when they do finally retire en masse? It stands to reason that those working under them will be promoted, but then, who will replace them?

Recall the 71.8 percent employment-population ratio from 2007 for 16 to 64 year olds. Today it stands at about 68.9 percent, accounting for more than 4 million potential jobs lost from the economy since then.

This suggests a counterintuitive outcome of simultaneous labor shortages and declining labor participation in the coming years. That is, fewer people seeking jobs at the same time employers cannot fill the spots they have.

At the same time economic growth is slowing down, and consumption, so too will production. If another recession strikes in the near future, on top of those potential jobs already lost will be possibly millions more. Can you say vicious cycle?

Meaning the new normal articulated by Fed head Yellen may not merely be a benign indicator, but a symptom of long-term economic decline. We’ll know when the next recession hits just how bad it might be. Is there any way out of this malaise?

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Robert Romano is the senior editor of Americans for Limited Government.

By Robert Romano

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