About those employment to population ratios

I got a lot of push back from an earlier post where I claimed the employment to population ratio is not reliable.  Here’s the data from Britain, a country which has suffered a considerably deeper recession than America:

Notice that in Britain the ratio of employment to working age population fell by 1%, from 72% to 71%, whereas the US ratio fell by 5 points, from 72% to 67%.  So here’s my question to those who defend the relevance of the E/pop ratio; does it accurately portray the severity of the UK double dip recession?

United Kingdom GDP Growth Rate



16 Responses to “About those employment to population ratios”

  1. Gravatar of Suvy Suvy
    16. October 2012 at 07:58

    It could be structural. In Europe, it’s harder to fire workers and wages also tend to be more rigid. That could be a part of it(I don’t know about the UK so I could be wrong). Another reason could also be that maybe more baby boomers are dropping out of the workforce in the US than in the UK(again, I’m not sure about this so someone correct me if I’m wrong).

  2. Gravatar of John John
    16. October 2012 at 08:56

    The facts aren’t really on your side here as rise in the unemployment rate was also less severe in the United Kingdom compared to the U.S. It never got above 8.5% there.


  3. Gravatar of Al Al
    16. October 2012 at 11:56

    But then why is the change in GDP a better indicator of severity, except by definition? I’m looking at the OECD’s data on Employment-Population for ages 25-54, and it seems to be a reliable coincident indicator WITHIN a country.

  4. Gravatar of Scott Sumner Scott Sumner
    16. October 2012 at 12:18

    Suvy, It’s easy to fire workers in Britain, and indeed the unemployment rate rose sharply.

    John, I can’t see how the facts aren’t on my side, I didn’t comment at all about the unemployment rate in this post.

    Al, GDP is also less than perfect, but I’m sure you could find many other indicators (such as unemployment) showing the British economy is depressed.

  5. Gravatar of John John
    16. October 2012 at 15:03


    Here’s the point I was trying to make. The recession was less severe on employment in Britain hence population to labor force ratios didn’t change as much. Labor force participation does tell you something useful about the labor market.

  6. Gravatar of ssumner ssumner
    16. October 2012 at 17:12

    John, Here’s the point I was trying to make. It’s quite likely that the unemployment rate provides a better picture of the labor market than the employment/population ratio. That was my claim for the US, and it’s certainly true for the UK.

  7. Gravatar of MP MP
    16. October 2012 at 22:39

    Scott, Suvy,

    In ‘ease of firing people’, as in many other things, the UK is pretty well approximated as being between the US and Europe. When my firm was laying people off, the US employees were out the door in a day with a smallish package. The UK had a months-long statutory process with mandatory employee councils on how the jobs could be saved. Eventually, the cuts were made, but everyone who went got a fair chunk of cash. On the Continent, they didn’t even start the process, just relied on attrition (which was down).

    I think that was pretty representative.

  8. Gravatar of James in London James in London
    16. October 2012 at 23:51

    The revisions to the UK GDP data have been large, and continue to be large. There have been large, really large, one-offs in 2q (the Jubilee and its associated extra public holidays) and the Olympics in 3q. Many experts here believe the GDP numbers are seriously underestimating economic growth.

    Somewhat more flippantly, there are less long term wage slaves around than there used to be. “Outsourcing” of public and private sector jobs has led to much more flexible job contracts overall. As a result overall job security is far lower in the UK these days than it used to be. While people in work show sticky downward wages, high levels of job turnover are leading to much more flexible wages across the economy, leading to somewhat lower incomes but more employment.

    Of course, this doesn’t really help much with the fiscal deficit and excess debt in the short term, but should be good for productivity and RGDP in the medium term and eventually on the fiscal deficit and excess debt in general.

  9. Gravatar of Mark C Mark C
    17. October 2012 at 04:44

    “So here’s my question to those who defend the relevance of the E/pop ratio; does it accurately portray the severity of the UK double dip recession?”

    UK real GDP dropped 6.1% YoY in Q1 2009 while US real GDP declined 4.6% YoY in Q1 2009. But UK unemployment rate increased from 5.5% in early 2007 to a high of 8.4%, a 2.9 percentage point increase while US unemployment rate increased from 4.4% in early 2007 to 10% at its highest, a good 5.6 percentage point increase.

    So by the same logic, unemployment rate isn’t really doing such a terrific job also.

    I really think both data are relevant, and one should always look at BOTH data as a whole to get a better idea of the US labor market. Here’s a paper by BLS on the ratio:

    As a side note, UK’s definition of ‘population’ seems to be different from that of the US but I have difficulty finding the actual definition for the UK, would appreciate if some one can tell me what it is.

    That being said, the TE chart seems to have made some modification on the US ratio, I suppose that’s to reconcile with the UK definition. Here’s a link where it’s adjusted to US concept:

  10. Gravatar of Saturos Saturos
    17. October 2012 at 04:46

    I think the lesson here is that when unemployment becomes a bigger concern you should start looking at both. The news should report both figures side-by-side.

  11. Gravatar of ssumner ssumner
    17. October 2012 at 04:54

    MP, But still, the unemploymen rate rose shaptly.

    Everyone, I agree the recent GDP data is questionable, and I would add I don’t think the UK had a double dip recession. But even so, GDP has done horribly since 2007, and the unemployment rate (while far from perfect) would pick up even an accurately measured GDP time path much better than the employment to pop ratio. I don’t see how anyone can seriously deny that.

  12. Gravatar of ssumner ssumner
    17. October 2012 at 04:55

    I should add that I imagine there are cases where the unemployment rate is misleading, due to changes in the natural rate of unemployment.

  13. Gravatar of James in London James in London
    17. October 2012 at 07:57

    All time high number of people employed in the UK just announced today, so passing pre-recession peak!

  14. Gravatar of ssumner ssumner
    18. October 2012 at 05:30

    James, That sounds plausible, I’d guess that population growth since 2007 explains the rise in unemployment from 5.5% to 7.9%.

  15. Gravatar of TheMoneyIllusion » Am I really that predictable? TheMoneyIllusion » Am I really that predictable?
    22. October 2012 at 05:51

    […] tell us something about labor market health.  It’s worth noting that this ratio has been pretty stable in Britain, falling only one percentage point since early 2007.  And the paper Tyler cites here refers to the […]

  16. Gravatar of TheMoneyIllusion » Did expansionary austerity actually fail in Britain? TheMoneyIllusion » Did expansionary austerity actually fail in Britain?
    22. October 2012 at 11:11

    […] Britain.  In the US they like to point to the employment to population ratio, but that variable is doing very well in Britain, especially compared to the […]

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