There has been much hullaballoo about how tight the labor market is given the upward revisions in the August and September figures, on top of the preliminary benchmark revision reported last month.
Dave Altig at Macroblog, Calculated Risk and PGL at Angry Bear are among the many that have discussed the interepretation of these numbers. One point asserted in the press is that the labor market is quite tight, given the revisions and the lower participation rate in recent years. However, as Mark Thoma at Economist’s View has documented, the participation rate has risen in the last year. So it strikes me that it would be a worthwhile exercise to examine how the recently released figures alter our perception of the labor market’s performance in this expansion versus the last.
In Figure 1, the official payroll employment series (blue), the payroll series adjusted (by me, see here for an explanation) to incorporate the preliminary benchmark revision (red), and the official series for the previous expansion (green), are illustrated (all normalized to a value of one at the peak).
Figure 1: Official payroll employment-current expansion (blue), Adjusted-for-preliminary-benchmark revision payroll employment-current expansion (red), and official payroll employment (1991-2001 expansion, green), all normalied to value of unity at NBER defined cyclical peak. Gray shading defines NBER defined recession period. Sources: St. Louis Fed FRED II, BLS Preliminary benchmark revisions to establishment survey, author’s calculations, and NBER.
The current expansion’s employment growth (still) looks rather lackluster. However, as noted above, various observers have argued that the lower particpation rate of recent years implies a lower rate of employment growth necessary to accomplish labor market equilibrium. In order to investigate this assertion, I ignore the fact that the participation rate is an endogenous variable, and plot in Figure 2 the official payroll series (blue), the adjusted-for-preliminary-benchmark revision payroll employment series (red), and the BLS’s household employment series adjusted to mimic the establishment series, all divided by the labor force (variable CLF16OV, in FRED II mnemonics). Obviously, since the household and establishment series are collected in different ways, dividing the payroll series by the labor force is not a perfect measure, but hopefully it will pick up the relevant trends.
Figure 2.Official payroll employment (blue), adjusted payroll employment (red) and adjusted household employment (green), divided by labor force. Sources: St. Louis Fed FRED II, author’s calculations, BLS (Nov. 3), and NBER.
What is clear is that only in the case of the BLS’s “adjusted” household series is the labor market nearly as tight as it was at the peak of the 1991-01 expansion. Obviously, using the official payroll employment series, the labor market is not so tight, roughly comparable to the conditions prevailing in 1996. Even incorporating in an ad hoc manner the preliminary benchmark revision, one finds the current market, as measured by the establishment survey, is about at the same level as it was in 1997. Indeed, the strong performance in the last three months now looks very much like a slackening market.
Finally, my skepticism regarding the tight market scenario is buttressed by an inspection of the employment cost (wages plus benefits) index, deflated by either the CPI or the Personal Consumption Expenditure deflator (chain-type index).
Figure 3.Employment cost index deflated by CPI (blue), and ECI deflated by PCE deflator (red). Sources: St. Louis Fed FRED II, author’s calculations, and NBER.
So let’s wait until the November employment situation to see if the market’s as tight as widely perceived (by the financial press, at least).