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Maintenance Level of Payroll Growth

Maintenance Level of Payroll Growth

James Clary

Economist

Note: All numbers in this posting are seasonally adjusted


U.S. Payrolls expanded by 117 jobs in July, following an increase of 46 in June.  The nation would need an additional 38 months of payroll growth at July levels to return to the prerecession employment of 137 in December 2007, though this would still not account for growth in the population and labor force that has taken place over the past 3 years.  This raises a question:

How fast do payrolls need to expand to keep pace with population growth?


Several different numbers have been published, with estimates varying between 90 and 180 jobs per month. The uncertainty around this number relates to estimates about the labor force participation rate (while estimates of the rate that U.S. population will grow have had a much higher degree of consensus). This is important because the unemployment rate varies greatly with the size of the labor force, and several factors drive these variations including the age of the population, the economic condition of the population, and the expectation of the population (i.e. confidence in finding a job).

The Congressional Budget Office (CBO) projects the population to grow by 1.8 million over the next year, and if the Labor Force Participation rate remains at 64.1%, this would require payrolls to expand by 90 per month to keep up with population growth; however, if the economy begins to recover and labor force participation rates increase to 64.6%, then employment would need to add 187 jobs per month to keep up with population growth over the next year. Over a longer time horizon, the number of jobs that will need to be added will decline due to the retiring baby-boomers and their impact on labor force participation rates (the CBO projects labor force participation will only be 63% in 2021).  Using the CBO estimate of the civilian population 16 years and older, employment will need to grow by at least 115깷 jobs per month to keep the unemployment rate steady.

Hampton Roads Payroll Growth Needs

Hampton Roads population growth rate has been slower than the national growth rate, but estimates of the labor force participation rate for the region are somewhat higher (labor force/civilian population 16 years and older). Rough estimates indicate that the region will need to add between 600 to 1000 jobs per month to keep up with population growth, but those estimates are sensitive to assumptions about labor force participation as is apparent in the national numbers.

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