Posted by: Josh Lehner | September 22, 2015

Jobs and Population Growth

Oregon’s economy is at full-throttle, but as our office has been discussing a lot more lately, migration flows have returned. A question that naturally arises is whether or not Oregon can handle and absorb these new job seekers. The answer is a clear yes. Today, Oregon needs approximately 2,000 jobs per month to keep up with population growth[1]. Oregon has gained just over 5,000 jobs per month in the past year. Furthermore, such job gains are more than enough to keep the unemployment rate steady and declining, despite the recent monthly pattern.

What the graph shows are both actual number of jobs gained by month compared with the number needed if the economy was operating at full strength. As such, the blue area represents an upper bound on the number of jobs needed to keep pace with population growth.

JobsPop8520

Back in 1990s it took about 3,000 jobs per month to keep up with population growth and thus keep the unemployment rate steady. This was due to both strong population growth and the fact the Baby Boomers were in their prime-working and peak-earning years. Today Oregon needs more like 2,000 jobs per month as population growth has slowed and the Baby Boomers are entering into their retirement years. Millennials are big enough to offset the retiring Boomers but not big enough to return potential labor force growth back to 3,000 per month.

What one also notices are the distinct periods during recessions and their aftermath where thousands of jobs were lost, yet population growth continued. It takes time to regain all those lost jobs and to catch up with the population gains. Today, Oregon’s economy has about 43,200 more jobs today than back at the onset of the Great Recession. However the number of potential workers has increased some 82,300. The state has made good progress on closing the gap, yet full recovery remains incomplete.JobsPop0717

According to our office’s economic and population forecasts, the number of jobs in Oregon will catch up and surpass the growth in the potential labor force in about another year. After that time, job gains are expected to slow considerably, more in-line with population gains. This can be seen in the first graph when the red line decelerates in late 2017. This is indicative of job growth when an economy is at full employment and the labor market slack has been eliminated. It is unreasonable to assume job growth of 4,000 per month forever, without the economy overheating (which would tend to cause a recession) or without much stronger population growth.

Of course this focuses just on the number of jobs and the number of workers, not the types or quality of those jobs. There are always winners and losers over the business cycle. Job polarization continues, even as middle-wage jobs are starting to pick up a little. Big service sector industries are at all-time highs, even as good producing industries remain below pre-recession levels (yet growing). These bigger, structural shifts are ongoing and will continue.

There are both upside and downside risks to this analysis and outlook. First to the downside, given the focus on potential labor force growth for an economy operating at full employment, should the weaknesses seen in LFPR across all age groups persist or become permanent, Oregon needs even fewer than 2,000 jobs per month to keep up with population. Second, to the upside, this analysis assumes our office’s population forecast is correct. To the extent that population growth exceeds our outlook, then Oregon will need more than 2,000 jobs per month to keep up with population growth.


[1] This analysis is a refinement and improvement over similar work from last year. This analysis compares actual job gains with growth in the potential labor force — the number of working age adults who would either have a job or look for work in an economy operating at full strength.


Responses

  1. Josh, thank you for a wonderful post. Can you address the cause-and-effect relationship (if any) between population and jobs? Does population follow employment? Vice-versa? Do you forecast population and employment independently or simultaneously?

    • Hi Doug. Good question. We forecast them independently in our models but certainly talk about it and make sure the relationships are reasonable. To answer your question, it does works both ways in terms of cause and effect, however one way is much stronger and clearer. That would be jobs come first, then come the people looking for those jobs. See our Labor Force Response post (link below). Statistically speaking, more people coming first does result in more jobs down the road as well (they bring their incomes with them, their spending on products and services does increase overall economic activity, and thus job creation) however this relationship is much weaker than job growth first, then people come looking for them.
      https://oregoneconomicanalysis.com/2014/02/14/labor-force-response/

  2. Very interesting analysis. Regarding the potential growth in the labor force linked to the LFPR by age cohort in 2000, do you assume that only the growth in the population with have the 2000-LFPR-by-age profile, or do you assume that the total state population will also gradually shift toward that LFPR profile?

    • It’s the latter, where LFPR shifts back upward toward their 2000 rates. Likely too optimistic yet the purpose here is to set the upper bound on jobs needed to keep up with labor force growth. In reality, Oregon today needs fewer than 2,000, but we are showing that even assuming that scenario, job growth today is more than enough to work on the slack. Additionally, that potential labor force calculation comes out of our previous work on the participation gap — the difference between actual LFPR and the LFPR at full employment. Our office’s baseline does assume some further increase in the LFPR and a narrowing of that participation gap over the next 2 years.
      https://oregoneconomicanalysis.com/2015/07/29/oregon-labor-force-participation/

  3. […] age migrants into employment, however eventually it does. For example, the state today is about a year away from the number of jobs catching back up with population growth, relative to the onset of the Great […]

  4. […] household survey has been noisy in 2015, to put it nicely. However, given that job gains continue to outpace population growth, and is expected to continue to do so for at least 2016, our office expects some continued […]


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