Those of us who spend our days with our heads buried in labour statistics tend to like using measures like the employment-to-population ratio as a guide to how the jobs market is performing. The change in the total number of people in work is relatively meaningless – an employment rise of 20 000 could be a strong or weak result, depending on how much the population grew over the same period. The unemployment rate is widely understood, but a rising rate by itself doesn’t tell you whether it’s getting worse due to people losing their jobs, or people entering the labour force and looking for work. While no single measure is perfect, the employment-to-population ratio “looks through” these problems, as does the hours-to-population ratio that I also like to use.

The problem is that this all sounds a bit esoteric and intangible to most people. No one ever marched in the street demanding a 0.6 percentage point rise in the employment-to-population ratio, but the call for “more jobs” is something that everyone can understand. I’m always on the lookout for ways to make economic statistics a bit more comprehensible, so I quite liked the way the Economic Policy Institute translated the US employment-to-population ratio into a “jobs deficit”.

EPI Jobs Deficit

The light blue line, as I understand it, shows what the level of employment in the US would have been if the employment-to-population ratio had stayed at its pre-recession level. You can then compare this with the actual level of employment to show that America is 9 million jobs short of where it could have been without the Great Recession.

Naturally, I was curious about what a similar chart would look like for Australia. It turns out that our “jobs deficit” is about 246 000 people. In October this year, there were 11.523 million employed people in Australia; if the same proportion of the population was employed as in May 2008, then we’d have 11.769m people in work.

Source: My calculations based on ABS 6291.0.55.001

While the number of Americans in work is still below its pre-recession level, total employment here never really fell, it just tracked sideways for a while. Still, jobs growth in the past couple of years hasn’t quite kept up with population growth, so the employment-to-population ratio has fallen and we have a “jobs deficit” of around 250 000 people.

But is it plausible to think that we could keep the same proportion of people in work that we had back in 2008? Our population is ageing and the baby boomers are starting to retire. How much of the jobs deficit is due to people of ‘prime working age’ working less, and how much of it is due to people moving out of ‘prime’ age into older demographic categories? The chart below is my stab at answering that question. The black line shows the employment-to-population ratio over the past few years, while the orange line is my estimation of what the ratio would have been if our demography had been frozen at its May 2008 levels.

Source: My calculations based on ABS 6291.0.55.001. I’ve smoothed the original data.

Based on this, the ageing of the population looks like it’s responsible for a little over half of the “jobs deficit” in Australia. Prime-age workers (those aged 25-54) are about as likely to be in work now as they were in 2008 – the prime-age employment to population ratio is 80.1% at the moment, compared to 80.3% in mid-08 (not seasonally adjusted). The big difference between now and then is that prime-aged workers accounted for 52.3% of the population back in May 2008; now they’re down to 51.5%.

Sixty seven years after World War 2 ended and the baby boom began, demographic change is making itself felt in the Australian labour market.

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