We have noted on several occasions the frustrating nature of our current economic recovery. Every time growth seems to be building steam and we are at the point where we can say a more robust recovery has arrived, the numbers disappoint.

The magic number appears to be sustained payroll growth of 200K a month. We just can’t seem to maintain that pace of growth for more than a couple of months.

Many sources have pointed out how the recovery in the headline unemployment rate has more to do with a drop in the participation rate than actual job growth. This is true but what we haven’t seen is a good analysis of how much of that should be expected.

We have known for years—decades really— about the demographic challenges in regards to spending and social security and certain entitlement programs. The deficit problems we have been focusing on, is a simple case of demographics. We created huge social programs following the “Great Depression” and as part of the “Great Society” at a time of the “Baby Boom” generation. Social security, for instance, was easily funded as there were multiples of workers for each retiree. When the program began the average life expectancy was below the retirement age!

Now those baby boomer (people born 1946-1964) are beginning to retire and there soon will be as many people collecting on these program as working to support them (see chart). That is not good. And it is why current budget battles are beside the point, what needs to happen is to recalibrate those programs based on current demographics.

But going back to our discussion on the economy, are the recent numbers as bad as some believe?

Back when I worked on the floor and closely followed the employment reports, it was article of faith that the economy needed to create 150,000 jobs every month just to keep pace because that many new people would be looking for jobs. Not to date myself, but that was a long time ago and we know that starting in 2011 the baby boom generation began to retire. So what should that expectation be? Tepid non-farm payroll growth between zero and 175,000, like what we have seen sporadically since the economy stopped bleeding jobs in 2009 is seen as a negative but should it? The reason being we have always assumed you need 150,000 to stay even.  The headline unemployment rate has dropped significantly in the past year but that has been discounted due to the drop in participation but should the drop be a natural result of our demographics?

The only person I have heard attempt to address this is CME Group Economist Blu Putnam, who suggested the drop in participation rate related somewhat to retirees.

I know that there are many more variables that go into this analysis: immigration patterns, investments patterns (need money to retire) foreign workers etc., but perhaps the current unemployment rate—still not great—is an accurate reflection on job growth.

I never knew if there was science behind that 150,000 figure or what that figure is today other than it must be lower. How much of the lower participation rate is long-term unemployed and how much is simple demographics?

I am not sure of the answer and it will probably be more difficult to find an honest analysis not tied to a political agenda but I would be interested in finding the answer because the statistics must be out there to make this clearer. 

We would appreciate any demographers/economics to help us out on this one.