Mis-Leading Labor Market Indicator

New York Fed Post

We have argued that the E/P ratio is a misleading indicator for the degree of the labor market recovery. However, the normalized, demographically adjusted E/P ratio is a useful additional gauge of labor market conditions. It is important to control for changing demographic factors when looking at the behavior of the E/P ratio over time. This step is particularly important today when these demographic factors are exerting downward pressure on the actual E/P rate, suggesting that the recent lack of improvement in the E/P ratio does not imply a lack of progress in the labor market.

*E/P ratio stands for employment/population ratio

My opinion: Great article showing how to correctly interpret the current jobs situation in America. The main idea in the post is best shown in the graph below (taken from the article):

Fed Article

 

Basically showing that the E/P ratio would have been 1.7 percent lower now than before the recession regardless of changing labor market conditions.

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