What it would take to get to 8 percent unemployment next year
On Sunday Steve Kroft asked President Obama on “60 Minutes” whether unemployment could get down as low as 8 percent by Election Day 2012. “I think it’s possible,” Obama said. “But, you know, I’m not in the job of prognosticating on the economy.” Fair enough. But someone’s got to do it. So how many jobs would it take to get unemployment down to 8 percent next year? Answer: Probably between 167,000 and 260,000 jobs created each month according to analysts — though it all depends on how many more people start looking for work. Which means it’s a pretty tall order.
A lot comes down to the labor force participation rate. At the beginning of the recession in 2007, 66 percent of Americans were either employed or actively looking for work. Two years later, that’s dropped to 64 percent, as workers have become discouraged by the gruesome job market and simply dropped out altogether. That affects the official unemployment rate, which only measures the number of people who have actively sought out work in the past four weeks. As Ezra wrote Monday, if there were as many people answering ads and dressing up for job interviews today as there were in 2007, the official unemployment number would be closer to 11 percent.
That brings us to the prognostication part. Calculated Risk crunches the numbers and concludes that if the participation rate stays at 64 percent, then the economy will need to create an average of 167,000 jobs each month to get down to 8 percent unemployment by Election Day next year. In 2011, we’ve hit that level in only four months out of 11 thus far. And, remember, many economists expect the U.S. economy to wade through a sticky patch next year, thanks to Europe’s woes. In other words, it won’t be easy.
Meanwhile, if the economy perks up and some of those disheartened workers started looking for work again, then the participation rate would nudge upward — say, to 64.5 percent. If that happens we’d need to add 260,000 new jobs each month to get the unemployment rate down to 8 percent by Election Day. And, apart from the one-time Census bump in 2010, the economy has never created that many new jobs since the recession started. Even the best year in the past decade (2005) didn’t average that many new jobs over the year. Which means we could very well see the official unemployment rate go up even if companies are hiring at a modest clip.
That’s not a terrible thing. The actual state of the job market is much more important than a headline stat. But people (and the media) mostly focus on the headline stat. And while an 8 percent official unemployment rate by Election Day is possible, it seems fairly unlikely at this point.