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THE TREND GROWTH RATE OF EMPLOYMENT: Various forces have been suggested as a cause of sluggish job growth after the 2001 recession. Many of the theories imply a weakness in aggregate demand and labor demand. However, some observers have suggested that broad demographic changes affecting the labor supply could play a part in job growth some see as lackluster. In “The Trend Growth Rate of Employment: Past, Present and Future,” Todd Clark, vice president and economist at the Federal Reserve Bank of Kansas City, and Taisuke Nakata, assistant economist at the Bank, explore the issue. The article is featured in the first quarter edition of the Bank’s Economic Review. A suggestion that demographic changes in the labor supply might be related to disappointing job growth since 2001 implies that forecasters may be too optimistic in their widely used standard estimate of trend job growth. Currently, most forecasters believe the economy must add 150,000 jobs per month to offset population growth and changes in labor force participation. After analyzing historical data and analyzing forecasts for population, labor force participation and other factors, the authors determine that over the next 10 years, a reasonable baseline projection for job trend growth is 1.1 percent per year, or about 120,000 jobs per month. The authors caution, however, that forecasts of trends are very uncertain and note that a reasonable confidence interval of approximately 70 percent around their baseline estimate would include the current common benchmark of 150,000 jobs. The article is available on the Bank’s Web site at www.KansasCityFed.org.
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