Employment Gains Likely to Be Smaller Than in Past Recoveries, Say Cleveland Fed Researchers in a Newly Published Economic Commentary

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The Federal Reserve announced in December that if the outlook for the U.S. labor market does not improve substantially, the central bank’s asset purchases would continue. What constitutes “substantial” employment gains is a subjective judgment; nonetheless, any benchmark should take into account three critical factors that are influencing employment growth trends, say Federal Reserve Bank of Cleveland researchers Mark Schweitzer and Murat Tasci.

Employment gains in the current environment are likely to be smaller than in past economic recoveries - 150,000 jobs per month or less.

The Federal Reserve announced in December that if the outlook for the U.S. labor market does not improve substantially, the central bank’s asset purchases would continue. What constitutes “substantial” employment gains is a subjective judgment. Nonetheless, any benchmark should take into account three critical factors that are influencing employment growth trends, say Federal Reserve Bank of Cleveland researchers Mark Schweitzer and Murat Tasci, who suggest that employment gains in the current environment are likely to be smaller than in past economic recoveries.

According to the researchers, the pattern of employment growth in the U.S. over a multiyear span depends importantly on three factors: the projected level of output growth, slowing growth of the U.S. labor force (i.e., a decline in the labor force participation rate), and less dynamism in the labor market relative to the 1980s (i.e., lower job finding and separation rates).

Incorporating those factors into a simple economic model, the researchers find that the current economic environment is associated with smaller employment gains than have been typically seen in the past. “The scenarios that we view as relevant in today’s environment would produce average employment gains of 150,000 jobs per month or less for 2013,” say the researchers.

Read: What Constitutes Substantial Employment Gains in Today’s Labor Market?

Also check out: The Ever-Updated Personal Saving Rate

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