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Calculated Risk Muses on Labor Force Participation and the Unemployment Rate

CR:

Calculated Risk: More on Labor Force Participation Rate: Sudeep Reddy and Sara Murray at the WSJ wrote: Jobless Rate Falls Further

A growing number of workers with health problems are applying for Social Security Disability Insurance benefits. The disability rolls, where many beneficiaries remain for life, have surged more than 14% since the recession began, to nearly 10.2 million in December 2010. "We already know from the number of people who have entered the disability rolls that there's going to be a permanent hit to the labor force participation rate," said Lawrence Katz, a Harvard University economist. "That's both costly to them—they're going to be less happy—and costly to us to lose someone who could be a productive worker."

I still expect some bounce back in the participation rate, and how many people return to the labor force is key in estimating how many jobs are needed to reduce the unemployment rate.

As I noted yesterday, if the Civilian noninstitutional population (over 16 years old) grows by about 2 million per year - and the participation rate stays flat - the economy will need to add about 100 thousand jobs per month to keep the unemployment rate steady at 8.9%.

If the population grows faster (say 2.5 million per year), and/or the participation rate rises, it could take significantly more jobs per month to hold the unemployment rate steady. As an example, if the working age population grows 2.5 million per year and the participation rate rises to 65% (from 64.2%) over the next two years, the economy will need to add 200 thousand jobs per month to hold the unemployment rate steady.

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