Aging demographic trends help explain
By Bruce Parker, Vermont Watchdog
The U.S. Department of Labor on Friday, Nov. 6, released an upbeat monthly jobs report showing the economy added 271,000 jobs in October. The number was well above the 185,000 jobs projected for the month.
The national unemployment rate, which declined slightly to 5 percent, marked an improvement over September, in which the market added just 142,000 new jobs—60,000 fewer than expected.
The number of Americans not participating in the labor force improved slightly to 94,513,000, from 94,610,000 in September.
In Vermont, September’s unemployment rate ticked up one-tenth to 3.7 percent, but is still among the lowest regionally and nationwide. The state’s two-year umemployment trend is virtually unchanged relative to New England states, which has seen a 2.2 percent improvement since 2013, declining from about 6.8 percent down to 4.6 percent.
Vermont Dept. of Labor
Tom Kavet, economist for the Vermont Legislature, said analysts have to look at a range of labor and demographic data to figure out where the state’s economy is heading.
“We have very few indicators at the state level that give us a read on what’s happening on a timely basis,” Kavet told Vermont Watchdog. “The reason the unemployment rate is important is not that it’s measuring labor markets perfectly, or giving you a perfect picture of what’s happening in a labor market; it’s a proxy for a lot of other indicators in the economy that, over a long period of time, it tracks in a coincident way. It’s not a leading indicator.”
Contrary to popular thought, the official unemployment rate—called U-3 unemployment—is not the percentage of people out of work. The number measures only a small subset of jobless Americans—civilians who say they actively sought a job in the past four weeks.
People not counted in the unemployment rate include those who have given up looking for work (discouraged workers), people who looked for work at some time in the past year (marginally attached workers), and people who want full time work but can’t find it due to economic reasons.
While the unemployment rate is useful for making relative comparisons of economic performance between states, Kavet said, economists need to “look under the covers” to see what’s really taking place.
Other key data points economists study include employment and the labor participation rate, as well as demographic trends—each having its own limitations, Kavet said.
Vermont’s employment number has declined since the Great Recession. In 2007, the state counted 338,096 Vermonters with jobs. That number dropped to 334,500 in September. Kavet also said that while employment data is helpful for tracking increases and decreases in the number of jobs, the statistic doesn’t distinguish between part- and full-time work.
“If there’s a shift toward more part-time work, which there has been in Vermont, you could get more jobs but not necessarily more hours,” he said.
The aging population and, therefore, the number of people choosing to retire is another factor that affects Vermont’s total employment picture.
A companion to the employment number is the labor force participation rate, which tallies together employed and unemployed stats as a percentage of the total working-age population. In August, the Green Mountain State’s total working-age population was 515,472. Of that number, about 67.7 percent were either employed or unemployed but looking for work in past four weeks. Vermont’s labor force participation rate has also dropped since the Great Recession—down from 70.1 percent in 2007.
Kavet says the labor force participation rate, which counts everyone above age 16 to arrive at the working-age population, has weaknesses as well.
“The problem is people over 65 are not really working, so you don’t want that in the denominator. And people age 15 to 20 are not often working that much . . . so you don’t have the same expectation for employment that you do with people in prime employable age groups that are more in the middle,” he said.
The number does capture people who have simply dropped out yet are not counted in the unemployment rate.
“(There are) a bunch of 20- and 30-something-year-olds who typically would be more out there engaged in the job market and in home-buying markets and other things, but are living with parents,” Kavet said. “You could call them slackers, but if they’re happy living on less, or on whatever they have, and they can live, it’s a life choice.”
The labor force participation rate in Vermont is not necessarily a signal of a bad economy. Kavet says it is just as much a product of the state’s concerning demographic trends.
“We’ve had this drop in participation that’s been a function of the bad economy, and we have an aging population in general, which is going to skew the numbers for a while until the baby boom population bulge moves through entirely into retirement.”
According to the state of Vermont’s “Scenario B” population projections for the years 2010-2030, the Green Mountain State is set to lose Vermonters, declining from 625,741 in 2010 to 620,480 in 2030. As seen in the chart, with the exception of the 35-39 age bracket, every working-age demographic is set to shrink over the next 15 years. Age groups above 65 are on track to increase anywhere between 53 percent and 118 percent.