Peak Employment?

Tyler Durden's picture

Submitted by Lance Roberts of STA Wealth Management,


"If we are creating between 150,000 and 200,000 jobs a month, how could we be at peak employment?"

The point is very valid and made me realize that a more apropos title would have been "Have We Reached Peak Employment GROWTH."  While it is very true that we are creating 150-200,000 jobs a month, it is also important that the working age population is growing each month either through natural births or immigration.  The chart below shows employment versus population growth.


Over the last 12 months, employment, as reported by the BLS has averaged 186,500 jobs per month while the working age population (16-54 years of age) has grown by 187,700 jobs.  In other words, employment is being created only by the incremental demand increases caused by population growth.

The issue of population growth is consistently overlooked when evaluating isolated jobs numbers.  By accounting for population growth, the monthly employment report is put into a contextual framework.  The chart below illustrates my point.


Prior to the turn of the century, employment accelerated faster than population growth.  However, beginning in 2000 the structural shift in employment began in earnest.  Outsourcing, increased productivity and technological innovations have contributed to slower rates of employment growth as the drive for profitability surged.

While my previous post generated many questions, the point was that there is a limit to employment growth in any given economic cycle.  It is also important to remember that economies do cycle.  Therefore, could the stagnation of employment growth be indicating a mature stage of the current economic cycle?

The Job Opening Labor and Turnover Survey (JOLTS) may provide some additional evidence to support the idea of "peak employment growth."  The chart below shows the ratio of job openings to hires.


As you would expect, there is an equilibrium where the number of individuals being hired matches the number of job openings.  At 90%, or above, the economy may be pushing the limits of full employment. 

The next chart shows Net Hires (new hires less total separations) versus employment growth.


Again, as you would suspect, there is an equilibrium point where employment is "full" and job openings and hires are simply matching job separations caused by quits, discharges and layoffs.  This also brings up the point of "labor hoarding" as it relates to initial jobless claims.

Employers have slashed labor costs to the bone in order to maximize profitability.  This is why corporate profits are at their highest levels on record while wage and employment growth lag.  However, there is a point where businesses simply cannot cut any further and they begin to "hoard" what labor they have.  The focus then turns to maximizing the labor force's productivity (increase output with minimal increases in labor costs) and hire additional labor only when demand, such as through population growth, forces expansion.

It is this issue of "labor hoarding" which explains the sharp drop in initial weekly jobless claims.  In order to file for unemployment benefits, an individual must have been first terminated, by layoff or discharge, from their previous employer.  An individual who "quits" a job cannot, in theory, file for unemployment insurance.  However, as companies begin to layoff or discharge fewer workers the number of individuals filing for initial claims will decline.  This is shown in the chart below which shows the 4-month average of layoff and discharges versus the 4-week average of initial jobless claims.


The "good news" is that for those that are currently employed - job safety is high.  Businesses are indeed hiring; but prefer to hire from the "currently employed" labor pool rather than the unemployed masses.  The "bad news" is that full-time employment remains elusive and wages remain suppressed due to the high competition for available work.

While the Federal Reserve's interventions continue to create a wealth effect for market participants, it is something only enjoyed primarily by those at the upper end of the pay scale.  For the rest of the country, the key issue is between the "have and have nots" - those that have a job and those that don't. 

While it is true that the country is creating jobs every month, the data may be suggesting it is "as good as it gets."  Of course, this is a very disappointing statement when you consider that roughly 1 in 3 people sit outside of the workforce, 20% of the population uses food stamps, and 100 million people access some form of welfare assistance.  The good news is, we aren't in a recession?

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dbTX's picture

Oh the summer of recovery, just around the corner.

skwid vacuous's picture

yes, Krugman-esq pent up demand from all the crippling polar vortexes... that will be the "meme" on CNBS starting in a few weeks... or maybe days? so predictable

Shocker's picture

Just a few Summers away

Layoff / Closing List:


Headbanger's picture

Work is a four letter word anyway.

Dagny Taggart's picture

...and the beatings shall continue until...  never mind

GernB's picture

I've seen this dance before. Enact every policy to kill the job market, then a few years in when thev policies have the predicted effect, start the claims that the effects of the bad policy are the new normal.

q99x2's picture

Sell that crap to some other fools. Trying to sell fraud as facts. Get out of the country ya traitor.

IridiumRebel's picture

Long Fascism and Automation!

Ignatius's picture

The whole concept of "peak employment" is weird.

Economies should first and foremost be about people, the lives they lead and the families they raise.  Economies are about people.  It's being turned into something about Goldman's or JPM's balance sheets.  Very weird.

U4 eee aaa's picture

That's because they want people hungry and unemployed. It is easier to get them to kill each other off

To understand a psychopath you need to understand how he thinks. He doesn't think about families, puppy dogs and white picket fences. He thinks about winning, numbers and being king of the mountain

MeelionDollerBogus's picture

and gladiator combat, however it may ensue.

MagicMoney's picture

Doesn't work that way. Companies work for profits. If they lose profits, and bleeding losses. The company goes bankrupt, thus no jobs. Employers hire on the basis profits. Does the employees contribute the profits or not, and how much. This is why wages differ according to different jobs. In a recession, companies cut costs to stay profitable. If people are fired, that means those employees don't contribute to the profitability of the company. Employers can lower wages, or fire people. Companies in a recession, or depression cut back for a reason. It's not out of sheer stupidity. If you ask why this should be? Well then, you probably asking for state run communism.

Ignatius's picture

"Well then, you probably asking for state run communism."

?  No, is the short answer.

The system is currently being run for the benefit of those who run it. 

Flakmeister's picture

It always was about the balance sheets of the JPMs and GSs of the world, back then though there was enough to go around and regulatory capture and skewed tax policy was not an issue...

Before the 1980's a bond trader was one of those good jobs that would net you 50 Gs a year when the median wage was 20-25K....

Now the ratio is more like 20 to 1....

Grande Tetons's picture

Peak Bullshit? 

Really, it could be.....I mean eventually with all the bullshit....the truth might accidentally be revealed. 

phat ho's picture

pacify the masses....legalize pot

Flakmeister's picture

How did people really think how Peak Oil was going to play out? We are currently on the plateau, just wait until production cannot be maintained...


From an earlier post of mine:

Currently the world is at a point where it can economically support the price of the marginal barrel required to offset the decline of existing fields. The world economy has demonstrated that it currently cannot deal with Brent in the range $115-118 for sustained periods. Fortuntely the cost of a new barrel is below that, at least for now...

The shit really hits the fan when the cost of a marginal new barrel becomes more expensive than what the economy can support. Then decline set in and Four Horsemen saddle up... 

However, what can first happen is that geologically we cannot replace that marginal barrel fast enough though the economy can support the price of extraction. Same outcome but a different path...

Given the data and using history as a tempered guide, one can not say with certainty which scenario plays out. To now, that marginal barrel is still at price at which the economy can sustain activity...

USofAzzDownWeGo's picture

I'm under the impression that another 911 could be staged, AGAIN, and the markets would love it!!!!!

LawsofPhysics's picture

Of course, as it would allow the MIC to steal more wealth from the middle class and eliminate all kinds of unfunded liabilities.

LawsofPhysics's picture

Please, humanity isn't just another ponzi, it's the ponzi...

hedge accordingly.

U4 eee aaa's picture

This may get me a ton of down votes but:

It makes me wonder why they still give tax breaks for buying machines when

A. They pay for themselves


B. they are now in direct competition to workers

NEOSERF's picture

Peak Employment, Cheap oil, Disposable income, Affordable medical, Congressional effectiveness, Civil liberties

Skyrocketing Debt, Avg Age, SSDI, SSI, Medical Costs, Unemployment, Inflation, Wealth gap, Skills gap, College costs, Stock market

And you wonder why billionaires are building their own floating island?

U4 eee aaa's picture

Wasn't it their think tanks that sold us all that junk?

YHC-FTSE's picture

According to the census data from July 2013, the age dependency ratio is 50.4%. (Those who are either too old or too young and dependent on the working population).  Since according to this article a third of the working age population is out of work, that means well over half (~67%) of the population are counting on the rest to keep them fed, sheltered, & supplied with icrap. 

Sustainable?  My unicorn says no problemo. 


linrom's picture

Only 1 perceters work, they feed, shelter and provide 99% with icrap and have enough left over to make themselves a few billions in their spare time.

toady's picture

That's actually what I'm starting to think, with a few stipulations;

The 1% don't actually "work", they manipulate, shuffle paper, and 'tweek' as needed.

Until full automation is achieved, another twenty to fifty years, an ever-dwindling 3 to 5% of the population will actually do the 'real' work.

There must be a massive tax increase to fund all the icrap, let alone food and water, for those billion screaming Chinamen, and four or five billion other folks around the world who have none (or just kill'em all).

Just one big happy planet of cows being fed by their betters.

thamnosma's picture

What jobs are being created?

squid427's picture

Whoever down arrowed Ignatius, could please explain what you didn't like about his observation, thanks.

I Write Code's picture

The employment to working age population chart is the interesting one, but reading it is very ambiguous when the peak is at year 2000 and we are still well above the levels of 1980.  It also fails to control for employment quality (wages, benefits, and a hard to quantify stability), and fails to separate out the 1% that is doing fine.

I don't doubt the overall claims in this article, but the arguments are not very strong.

The question is, how can we change it?  Why don't we want to work towards a yacht in every garage?  Every man, woman, and child world-wide should be working 27 hours a day on nautical equipment, generating immense wealth and tax revenues through multiplier effects.  It should be the Nancy Pelosi Memorial "Yacht's All, Folks!" Act. 

Flammonde's picture

I know all about this have/have not.  It took two years to obtain my last job (professional 6 figure income in sales, non-software) and that gig lasted 14 months before the company merged and downsized letting 4 sales people go.

Now at 56 I am in a market that wants not more than 3 years experience in anything except college.  No outsiders need apply.

I understand San Francisco is unique, 90% of the paid jobs are for the hot money .coms, however even when I apply for dog shit jobs at $12.00 per houir the door is closed due to experience and age.

Class War is right now and the .001% are winning.

linrom's picture

The concept of 'labor hoarding' does not reflect the real world. If employers were 'hoarding' labor, wages would be rising? I can't think of a better way for employers who want to retain workers and incentivize them to stay put than to raise their wages and benefits. They would also hire redundant workers to 'hoard' more of them.



MagicMoney's picture

Labor hoarding is simply employers holding onto the best quality labor, and weeding out the slow workers, the less competent workers. Employers look for more bang for their buck when they hire somebody, because the economy isn't doing too well, and also because employers can't lower wages, or don't have the freedom to lower wages to hire more people. That's something people don't understand about minimum wage. They think they are going a good deal when infact it has it's own blowbacks. You don't raise wages in a bad economy. Everybody can say the economy is in recovery, or the recession is over, but fact remains, the economy is not in good shape.

Marley's picture

Why not, we've already past peak intelligere.

Marley's picture

Why not, we've already past peak intelligere.

NihilistZero's picture


Didn't we get by for a long time with dem wimenz staying at home?  Seems we're way above the labor participation rate of the pre women's lib era...  Of course that leaves us with that damned deflation thing again.  Can't have the proles regain any of that lost purchasing power now can we LOL