The ubiquity of computers and the disappearance of gold
watches and pensions on retirement day aren’t the only differences. Go back 45
years and, in a then-novel development, it was your mother’s job market, too.
The widespread entry of women into the labor force helped push the civilian
labor-participation rate above 60%.
Shifting demographics have seen that trend reverse with
important effects on the unemployment rate. After peaking above 67% 15 years
ago, participation has been in steady decline and has stabilized at around
62.8% over the past 12 months.
Friday’s jobs report for December should bring the average
monthly jobs gain in 2014 to an impressive 240,000 and unemployment a 10th of a
point lower to 5.7%. That latter figure is good—less than the historical
average and 4.3 points below the 2009 post recession peak. But it would have
been a full percentage point lower if the participation rate had kept dropping
at the pace that it did earlier in the recovery.
With the Federal Reserve seemingly on schedule to raise
interest rates from zero later this year, it is getting harder for those in
favor of delaying that decision to point to the labor market as an excuse for
dithering. Payroll growth in 2015 on par with last year would bring
unemployment down to 4.8% this coming December. And that assumes that the
decline in labor-force participation has ended.
If the rate were to fall to, say, 62.5% by year-end, then
the same jobs growth would bring unemployment to just 4.3%— below what was
experienced during the housing bubble. It dipped briefly under 4% during the
technology boom, by which time the Fed was well into a rate-tightening cycle to
head off inflation.
But comments Wednesday from Chicago Federal Reserve
President Charles Evans suggested that raising rates too soon could be a
“catastrophe,” even if the job market stays healthy. His greater concern is
that the Fed’s 2% inflation target remains elusive. Stock markets rose on those
comments. While the collapse in energy prices will damp prices for now, Mr.
Evans may get his wish of higher inflation if payroll growth and participation
maintain their current trajectory for too long.
Click here to access the full
article on The Wall Street Journal.