Employment levels

What Are Employment Levels?

Employment levels refer to the total number of individuals within an economy who are currently employed, typically expressed as a raw number or as a percentage of the total working-age population. As a crucial component of macroeconomics, employment levels provide vital insight into the health and performance of the labor market and the broader economy. High employment levels generally indicate a robust economy with ample job opportunities, while low employment levels can signal economic weakness or recession. These statistics are among the most closely watched economic indicators globally, influencing policy decisions and financial market sentiment.

History and Origin

The systematic collection of employment levels data in the United States dates back to the late 19th and early 20th centuries. The Bureau of Labor was established within the Department of the Interior in 1884 to gather information on employment and labor issues. Initially, its work focused on "special investigations" rather than routine monthly counts¹³. However, the economic shifts and industrial unrest of the early 20th century highlighted the need for more consistent and trustworthy data.

In October 1915, the Bureau of Labor Statistics (BLS), which had been transferred to the newly created Department of Labor in 1913, began collecting employment and payroll data for select manufacturing industries¹¹, ¹². This marked the beginning of what is now known as the Current Employment Statistics (CES) program¹⁰. The onset of mass unemployment in the early 1930s during the Great Depression further underscored the urgency for comprehensive unemployment statistics, leading to the development of household-based surveys. In 1940, the Work Projects Administration initiated the "Monthly Report of Unemployment," a national household survey, which was later transferred to the Census Bureau in 1942 and renamed the Current Population Survey (CPS)⁸, ⁹. These two primary surveys—the CES (payroll survey) and the CPS (household survey)—continue to be the foundation for reporting employment levels in the U.S. today.

#⁷# Key Takeaways

• Employment levels measure the total number of people working in an economy.
• They serve as a key indicator of economic health, reflecting job availability and economic activity.
• The Bureau of Labor Statistics (BLS) collects and publishes primary data on U.S. employment levels through two main surveys: the Current Employment Statistics (CES) and the Current Population Survey (CPS).
• High employment levels are generally associated with a strong economy, consumer confidence, and economic growth.
• Fluctuations in employment levels influence government policy, including monetary policy and fiscal policy.

Interpreting Employment Levels

Interpreting employment levels involves understanding the various ways this data is presented and what it signifies for the overall economy. When analyzing employment levels, economists and policymakers often look at both the absolute number of employed individuals and the employment-to-population ratio, which considers the proportion of the civilian non-institutional population that is employed. A rising employment-to-population ratio indicates that a larger share of the potential workforce is engaged in productive activity, often signaling a healthy and expanding business cycle.

Conversely, a declining ratio or a drop in the absolute number of employed persons suggests labor market weakness. For instance, an increase in employment levels often corresponds with higher consumer spending and improved disposable income, driving economic activity. The Federal Reserve, for example, closely monitors employment levels and other labor market conditions when making decisions about interest rates as part of its dual mandate to achieve maximum employment and price stability.

#⁵, ⁶# Hypothetical Example

Consider the hypothetical economy of "Diversificania." In January, Diversificania reported employment levels of 100 million people. By July, economic data indicated that employment levels had risen to 102 million people. This 2% increase in employed individuals over six months suggests a strengthening economy.

This rise could be due to several factors, such as new businesses opening, existing companies expanding, or increased demand for goods and services. The growth in employment levels would likely lead to higher aggregate wage growth and greater purchasing power for consumers, potentially stimulating further economic activity. Policymakers in Diversificania might view this as a positive sign, indicating that their economic policies are fostering job creation.

Practical Applications

Employment levels are a cornerstone of economic analysis and have wide-ranging practical applications in finance, markets, and policy:

• Economic Health Assessment: Government agencies, economists, and investors use employment levels to gauge the current state and future direction of the economy. Consistent growth in employment often signals economic expansion, while declines can foreshadow or confirm a downturn.
• Monetary Policy Formulation: Central banks, such as the Federal Reserve, explicitly consider employment levels as part of their mandates. Strong employment data can provide justification for raising or maintaining interest rates to temper potential inflation, whereas weakening employment might prompt a reduction in rates to stimulate job growth. Th⁴e Federal Open Market Committee (FOMC) regularly assesses labor market conditions as part of its decision-making process for monetary policy.
• ², ³ Fiscal Policy Decisions: Governments utilize employment data to inform budgetary and legislative decisions, including stimulus packages, unemployment benefits, and job training programs aimed at improving the labor force participation and overall employment situation.
• Investment Decisions: Investors closely watch employment reports, particularly the monthly jobs report from the BLS, as these figures can influence market sentiment and asset prices across various sectors. Strong employment levels can boost stock markets and strengthen currencies.
• Business Planning: Businesses use employment trend data to make strategic decisions regarding hiring, expansion, production, and investment. A tight labor market, indicated by high employment levels, may necessitate higher wages or improved benefits to attract talent, affecting production costs and pricing strategies based on supply and demand dynamics.

Limitations and Criticisms

While employment levels are a vital economic metric, they come with certain limitations and criticisms:

• Lagging Indicator: Employment levels are often considered a lagging indicator of economic activity. This means changes in employment might only become evident after a shift in the broader economy has already occurred. For example, businesses may reduce hiring or lay off workers only after a period of declining sales or gross domestic product (GDP).
• Underemployment and Quality of Jobs: The headline employment figures do not always capture the full picture of labor market health. They may not adequately reflect underemployment, where individuals are working part-time but desire full-time work, or individuals who are working in jobs below their skill level. For instance, research from the Federal Reserve Bank of New York examines the challenges recent college graduates face in finding employment commensurate with their education, highlighting issues of underemployment even when overall employment levels appear strong.
• ¹ Discouraged Workers: Employment levels typically exclude "discouraged workers" – individuals who have stopped looking for work because they believe no jobs are available. This omission can mask the true extent of labor market slack, making employment levels appear healthier than they are.
• Seasonal Adjustments and Revisions: Employment data is often seasonally adjusted to remove predictable fluctuations, and initial estimates are subject to revision. These adjustments and revisions, while necessary for accuracy, can sometimes create volatility or lead to initial misinterpretations of trends.
• Demographic Shifts: Changes in population demographics, such as an aging workforce or shifts in labor force participation rates, can influence employment levels independently of cyclical economic conditions.

Employment Levels vs. Unemployment Rate

While closely related, employment levels and the unemployment rate measure distinct aspects of the labor market.

Employment Levels refer to the absolute number or proportion of people who are currently working. It is a direct measure of job creation and the size of the employed workforce.

The Unemployment Rate, conversely, is the percentage of the labor force that is jobless but actively seeking employment. It focuses on those who are available and willing to work but cannot find a job.

Confusion often arises because both metrics are reported together and reflect labor market conditions. However, it's possible for employment levels to rise while the unemployment rate also rises, if, for example, a significant number of previously discouraged workers re-enter the labor force and start actively looking for jobs, but do not immediately find them. Conversely, employment levels could remain stable even if the unemployment rate changes, depending on shifts in labor force participation.

FAQs

How are employment levels measured in the United States?

In the United States, employment levels are primarily measured by the Bureau of Labor Statistics (BLS) through two major surveys: the Current Population Survey (CPS), a monthly survey of households, and the Current Employment Statistics (CES) survey, which gathers data from employer payrolls. These surveys provide comprehensive data on the number of employed individuals, hours worked, and earnings across various industries.

Why are employment levels important to the economy?

Employment levels are critical because they directly reflect the economy's ability to create jobs and utilize its human capital. High employment levels generally lead to greater consumer spending, increased tax revenues, and improved overall economic growth. They are a key factor considered by central banks when setting monetary policy.

Do employment levels include all types of workers?

Typically, official employment levels reported by the BLS include individuals aged 16 and over who are working for pay or profit, or who are working without pay in a family business for at least 15 hours per week. This includes full-time, part-time, self-employed, and temporary workers. It generally excludes individuals in the military and those in institutions.

How do employment levels affect financial markets?

Financial markets react significantly to changes in employment levels. Strong employment reports often indicate a healthy economy, which can boost stock prices as corporate earnings are expected to rise. Conversely, weakening employment levels can signal economic slowdowns or recessions, potentially leading to market downturns. Bond markets and currency markets also react, as employment data influences expectations for interest rates and inflation.