2017 Job Gains Were Far Better Than We've Been Told
Startling positive reversals in U.S. economic fortunes occurred in 2017. Not surprisingly, most have either gone unnoticed or been begrudgingly acknowledged by a media establishment consumed by real Trump blunders and an array of politicized myths. One positive economic reversal that has been overlooked concerns labor market dynamics.
The BLS Employment Situation Report for December 2017 showed a continued slowing pace of Payroll Series job creation compared to the prior seven-year average. The trend is especially noticeable from the peak in 2014, as depicted in Figure 1. But the news is far from the negative picture media accounts have portrayed.
Partisan media delighted in reporting the 2017 slowdown. These accounts uniformly focus on "jobs created" without any qualifying context as to quality of jobs created or underlying demographic conditions.
Consider how the issue is typically portrayed. Easily discredited media accounts note that the labor force participation rate (LFPR) "of 62.7% has been essentially flat over the past four years," as if that fact imposed some kind of cap on job creation going forward. While it's true that the LFPR has been flat, focusing exclusively on this fact neglects the fact that the LFPR is driven by the labor force count, which is wholly arbitrary. To engineer a lower reading on the politically sensitive unemployment rate during Obama's term, the BLS removed millions from the labor force. Its arbitrary nature stems from BLS latitude in determining who is in, or not in, the labor force.
A better statistic is the employment population ratio because it measures the proportion of the population actually employed. Neither measure is subject to guesswork. Figure 2 shows that the employment population ratio climbed steadily during the past four years, while the LFPR remained flat, contradicting the "LFPR employment cap" idea.
During the last eight years, there was a huge divergence in labor force compared to employment. Figure 3 shows that employment has magically grown more than twice as fast as the labor force. During the past eight years, every time two people found jobs, only one was added to the labor force.
Declining Population Growth
Why should 2017 Payroll Series jobs growth numbers contain major qualifiers? To answer that question, recognize how employment growth is derived. There are only three pools of candidates to sustain employment growth. New jobs can be filled by (1) Teenagers turning age 16 getting hired, (2) unemployed or not in the labor force adults who find jobs, and (3) foreign-born workers who obtain jobs.
Amazingly, in the eight years, from January 2010 to December 2017, only 5,500 new jobs on average each month were filled by people in the 16- to 19-year-old age bracket. That's during a time when employment grew by 16 million. Clearly, the lion's share of employment growth was derived from the two other sources.
Even more amazing was the change in demographics among adult population entrants in 2017. One third of adult population growth between 2010 and 2016 was foreign-born, 6 million in total. Yet in 2017, foreign-born adults declined by 77,000. It was not just illegal, but legal immigration that plummeted in 2017.
This demographic change has had a profound impact upon population growth. Figure 4 shows that growth in work-eligible population was cut in half from levels observed between 2010 and 2016.
Figure 5 shows foreign-born workers constituted a significant cohort of new employment between 2010 and 2016, averaging 656,000 per year, one third of all jobs created during those years. But in 2017, that number declined to just 210,000.
Instead of a 2.5-million annual population gain between 2010 and 2016, 2017 had witnessed a 46.3% reduction to just 1.4 million. These are the candidates most likely to become employed. And instead of an average 864,000 foreign-born population gain, there had been a reduction of 77,000. Despite being deprived of a significant pool of eligible candidates, Payroll Series job growth had nearly kept pace with the prior seven years, when foreign-born workers were flooding onto employment rosters at an annual pace of 656,000. To maintain job growth at nearly the same pace as before, economic conditions needed to have been sufficiently positive to induce discouraged workers to become employed. That's exactly what happened.
2017-Full Time Job Growth Soars
Another overlooked positive development concerns the quality of jobs produced in 2017 compared to prior years. Full-time job creation in 2017 exceeded 2.47 million. That amounted to a 60% increase over 2016 and a 27% increase over the prior seven-year average, as Figure 6 shows.
One might reasonably ask how the U.S. economy had managed to create 2.5 million full-time jobs in 2017 when the adult population had increased by just 1.37 million, less than of the 2.9 million growth in 2016 and 2.8 million in 2015. Needless to say, the job market was robust enough to absorb more than 100% of new adults into full-time work and still have room for another 1.1 million. Where did these extra workers come from?
Part-time employment data provides a clue. Newly created jobs can be for either full- or part-time work. The BLS uses 35 hours per week as the delineation. Between 2010 to 2016, an average of 59,000 part-time jobs were created, including a massive 525,000-strong spike in 2016. Recall the delight of hyperventilating partisan media accounts reporting job growth in 2016 was higher than in 2017. What they failed to mention is that 2017 full-time job growth was 60% higher than in 2016, and that 525,000 of those 2016 jobs had been for part-time work. It was the Obama burger-flipper 1.5% growth economy in all its graveyard glory, abetted by revisionism and selective reporting. Figure 7 shows 638,000 part-time workers transitioned into full-time status. Undoubtedly, this was a consequence of expectations that regulatory burdens of the Obama administration would be reduced under Trump.
The combination of these two major changes in the labor market – a greater than 50% cut in adult population growth and a 60% surge in full-time jobs – is highlighted by examining the impact of the two taken together. New population entrants are the single largest source of new job creation. So it's useful to measure how many full-time jobs were created per new adult population entrant over time.
Figure 8 shows that there were 1.81 full-time jobs created in 2017 for each new population entrant. That compares to just 0.55 in 2016 and an average of 0.77 in the prior seven years. In other words, a new population entrant in 2017 was 3.3 times more likely to find full-time work than in 2016 and 2.3 times more likely than in the prior seven years. Full-time job creation is usually an indication of improving expectations. Those improving expectations occurred in 2017, a sudden reversal from prior years.
These labor market dynamics are nothing short of extraordinary, given the substantial decline in adult population growth. What is not surprising is the total absence of media coverage on the topic.
Joseph Toomey is a career management consultant with undergraduate and MBA degrees in finance. He is the author of An Unworthy Future, an economic appraisal of Obama's "green energy" economy.