Author: Andrew Berger-Gross
How will we know when the labor market has fully recovered from the Great Recession? Some observers track the employment-to-population (“EPOP”) ratio to gauge the amount of “slack” remaining in the labor market. This ratio simply measures the percentage of the population that is currently employed.1 According to this metric, North Carolina has only recovered around a quarter (26%) of the ground lost during the recession.
However, like any economic indicator, the EPOP ratio does not by itself provide a complete picture of labor market conditions. For example, the EPOP ratio doesn’t take into consideration major long-term trends in the population—such as the aging Baby Boomer cohort or increasing school enrollment among young adults—that might cause the workforce to shrink even during the best of times. In this manner, the EPOP ratio understates the extent of North Carolina’s labor market recovery.
On the other hand, the EPOP ratio can also overstate the extent of the recovery in one particular respect: It measures all employed persons equivalently, including those who are employed part-time but would prefer (and are unable to obtain) full-time hours. These individuals are in a work arrangement they do not desire and as a result their productive abilities are not being fully utilized.
The Federal Reserve Bank of Atlanta recently developed an alternative measure, the “ZPOP” ratio (Z for “utilization”), to clear up some of these sources of confusion. This metric counts the number of persons employed full-time, those working part-time voluntarily, and those out of the labor force who don’t want a job right now. In a general sense, the ZPOP ratio can be said to represent the percentage of the population that is currently in the type of work arrangement they desire.
A ZPOP ratio for North Carolina can be calculated using publicly-available data from the Current Population Survey.
The ZPOP ratio suggests that a much larger proportion of the state’s population is fully utilized (92% in the most recent period) than does the EPOP ratio (58%). Moreover, North Carolina’s ZPOP ratio has improved at a healthier clip, recovering over two-thirds (69%) of the ground lost during the recession.2
The recent improvement in North Carolina’s ZPOP ratio has resulted from employment gains as well as an increasing number of individuals outside the labor force who don’t want a job now. Previous work by LEAD demonstrated that much of the increase in North Carolina’s out-of-the-labor-force population is driven by young adults enrolled in school and retiring Baby Boomers, although there are some troubling increases among the prime working-age population as well.
We can draw two conclusions about North Carolina’s recent labor market trends:
On one hand, our labor market is now as tight as it was during the heyday of the mid-2000s, no matter how you measure it. Most of the long-term decline in labor force participation is being driven by benign demographic-related factors (such as retirement and school), while those who choose to participate in the labor force are facing better employment prospects than they have in years.
At the same time, declining rates of labor force participation mean that fewer North Carolinians are engaged in the economy, thus reducing our productive capacity and potentially leading to slower economic growth. Public policies that bolster the value of work or enable work-life balance might help draw more individuals into the labor force, while promoting population growth and encouraging productivity-enhancing investments in education, training, and physical capital may help to offset the negative impact of this corrosive long-term trend.
Continue to follow the LEAD Feed for more information about the opportunities and challenges facing North Carolina’s labor market, and contact us at any time to learn more about the work we are doing to support North Carolina’s growing economy.
General disclaimers:
Data sources cited in this article are derived from surveys and are subject to sampling and non-sampling error. Any mistakes in data management, analysis, or presentation are the author’s.
1 In this context, “population” refers to the civilian, non-institutionalized population aged 16 and older.
2 In comparison, North Carolina’s unemployment rate has recovered 77% of the ground lost during the recession.