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March 02, 2011

U.S. Peak Employment
By Doug Oest, CAIA, Managing Partner


The unemployment situation in the U.S. has been a major concern for economists when considering an economic recovery from the "Great Recession". This week's chart examines the peak employment level (total number of people working in the U.S. labor force), along with the time taken to return to that peak level after a recession. The chart looks at peak employment in percentage terms, so 100% indicates the U.S. is at a peak employment level, while anything below 100% indicates the employment level is lower than the previous peak employment.

The U.S. hit a peak employment level in November 2007, and has yet to make much progress towards reaching that peak again. Since 1948, this is the longest time period the peak employment level has remained under its previous high after a recession. Growth in the U.S. labor force (total number of people working or seeking work) has leveled off over the last few years while more than 1.7 million civilians have dropped out of the labor force since mid-2008. The nearly 14 million unemployed people that remain in the labor force average nearly 37 weeks of being unemployed.

Several economists, including those that authored a working paper at the San Francisco Fed, have noted that the natural unemployment rate, long considered to be 5%, may have increased over the last several years to stand as high as 6.9% today. After examining variables such as labor market skill mismatches, extended unemployment benefits and growth in productivity, these studies have concluded that the increase in the natural rate of unemployment is most likely temporary, though may last for several years.

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