population aged 16 and older are from the U.S. Census Bureau.3 We smooth the
data to adjust for the irregular timing of data collection and revisions
produced by the decennial censuses and filter it to isolate a trend component.4
Multiplying our trend population estimates by our trend labor force
participation rate produces a time series for the trend labor force.
As shown in figure 1, panel B, trend population growth also climbed steadily through the 1990s, peaking in the early 2000s at about 1.25%. It then decelerated before stabilizing in recent years at about 1%. While actual population growth has bounced back some, the Census Bureau expects it to fall until 2018 and then stabilize at just over 0.8% per year.
The natural rate of unemployment represents the unemployment rate that would prevail in an economy making full use of its productive resources. Our estimate of the natural rate of unemployment coincides with the Congressional Budget Office's long-run measure through 2007. Starting in 2008, we use estimates of short-run factors that temporarily raise the natural rate above its long-run value.5 By multiplying the trend labor force by one minus the natural rate of unemployment, we arrive at a measure of trend employment that is consistent with the BLS's household survey of employment from which the unemployment rate is calculated.
The natural rate of unemployment declined from almost 6% in the late 1980s to 5% by the turn of the century (figure 2, panel A). We estimate that it rose sharply during the 2007-09 recession to 6.25% before declining gradually since 2010. We project that this decline will continue at a measured pace until the natural rate reaches 5.25% in 2014.
Finally, to derive an estimate of the trend in the more commonly referenced BLS payroll survey of employment requires an additional multiplication by the trend ratio of payroll to household survey employment.6 The trend ratio of payroll to household employment recently stabilized at just below 94% after a long ascent during the 1980s and 1990s and subsequent decline since 2000 (figure 2, panel B).7We expect it to stay at its 2012 level of 93.8% going forward.
Our estimates of trend employment growth
Figure 3 plots our estimate of trend employment growth from 1988 to 2020. Trend payroll employment grew by roughly 150,000 jobs per month during the late 1980s and early 1990s and roughly 200,000 jobs per month during the mid- to late 1990s. In the early 2000s, trend employment growth fell to under 100,000 jobs per month, where it has roughly remained.
The historically high rates of trend job growth in the late 1980s and 1990s were driven by a confluence of all four factors described above-an increase in the trend labor force participation rate, an increase in the ratio of payroll to household survey employment, higher population growth, and a decline in the natural rate of unemployment. The former two factors reversed course around the turn of the century, causing trend payroll employment growth to fall.
During the recent recession, trend payroll employment growth even dipped below zero, driven by a sharp rise in the natural rate of unemployment. Trend payroll employment growth has subsequently picked up during the recovery, averaging roughly 100,000jobs per month since 2009. We project trend employment growth to
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