Payroll gains averaging 80,000 a month will be enough to keep the U.S. jobless rate steady over the next couple of years as aging baby boomers retire and population growth slows, according to research by economists at the Federal Reserve Bank of Chicago.
Those demographic trends will probably continue, pushing the figure down to about 35,000 jobs a month in the second half of this decade, the report said.
“These estimates are lower than the conventional wisdom that 100,000 to 150,000 jobs per month are needed to lower the unemployment rate,” Daniel Aaronson, director of microeconomic research at the Chicago Fed, and Scott Brave, a senior economist, wrote in a report dated July 2013 on the central bank’s website.
“This has ramifications for the potential speed at which the economy can grow in the future,” the researchers wrote.
Aaronson and Brave tracked four variables to arrive at their estimates: The labor force participation rate, population growth, the rate of unemployment that would be associated with a stable economy and the relationship between hiring as measured by the Labor Department’s household survey and changes in payrolls derived from its survey of employers.
The share of the working-age population that is either employed or actively seeking work, known as the participation rate, will drop by about 0.3 percentage point annually through at least 2020, according to their estimates. This reflects the retirement of the baby boom generation born after World War II.
The projections also use Census Bureau estimates that show population growth will slow from the current trend of about a 1% gain a year to about 0.8% by 2018, and stabilize thereafter.
The rate of unemployment that will keep inflation steady jumped to about 6.25% during the recession and has “gradually” declined since, according to the Chicago Fed economists. It will keep moving down as the economy improves to reach 5.25% in 2014, according to their projections.
Finally, Aaronson and Brave estimate that the relationship between employment in the household and establishment surveys will hold at its current level.
They said that one wild card that could increase job growth above the trend projection was immigration.