slow to about 80,000 per month over the next two years and then drop to roughly
35,000 jobs per month, on average, from 2016 to 2020.
The projected slowdown is based on 1) a continuing decline in trend labor force participation attributable to the aging of the baby boomer generation and 2) a lower level of projected population growth going forward. The Census Bureau projects a significant slowdown in population growth from the 1.00%-1.25% rate that prevailed for the two decades prior to the most recent recession (figure 2, panel A).
Our forecast of trend employment reported in figure 3 is based on a number of assumptions. To get a feel for the sensitivity of these estimates, we next consider a number of alternative scenarios.
First, rather than using the Census Bureau's population projection (figure 1, panel B), we project trend population growth to hold near its current level of 1% throughout the remainder of the decade. This is close to the Census Bureau's alternative "high" projection for population growth. This projection has only a small effect on our estimates of trend employment growth in 2013, 2014, and 2015, but adds roughly 20,000 jobs per month, on average, to our baseline estimate after 2015. This would imply trend payroll employment growth of about 55,000jobs per month over the second half of this decade, as opposed to about 35,000.8
The key uncertainty with regard to population growth is immigration. Immigration fell significantly in response to the recession and has yet to recover. In response, the Census Bureau revised its immigration projection downward. But it is plausible that immigration may increase more than the Census Bureau's forecast as firms look abroad to make up for the declining labor force participation of domestic workers. Allowing immigration levels to catch up to the Census Bureau's 2008 forecasted path by 2020 implies trend employment growth of around 100,000 jobs per month over the next two years and, on average, about 65,000 during the second half of this decade.
Second, our baseline estimate assumes that the trend labor force participation rate declines by roughly 0.3 percentage points per year. As seen in panel A of figure 1, labor force participation has been running below its trend for quite some time. Alternatively, suppose labor force participation drops by 0.1 or 0.5 percentage points per year, reflecting our uncertainty about the extent to which lower participation should be in the trend or the cycle. This alteration would add or subtract about 35,000 jobs per month, on average, from our baseline trend payroll employment growth projection.
Third, suppose the trend payroll-household ratio converges slowly to 95%, its level during the late 1990s and early 2000s, instead of our baseline assumption of 93.8%. This change would add about 20,000 jobs per month to trend payroll employment growth.
Finally, we investigated the impact of our long-run natural rate assumption of 5.25% on our projections. If we were to allow the natural rate to return to its pre-recession level of 5% in 2015, this would add roughly 30,000 jobs per month to our estimate of trend payroll employment growth in that year alone.
If we take the most optimistic assumptions into account, trend payroll employment growth could average a bit more than 120,000jobs per month over the
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