Courtesy of Mish.
Many have heard of normalized P/E ratios based on 10-year earnings averages and the concept of reversion to the mean.
To the best of my knowledge no one has attempted to normalize unemployment rates based on demographic trends, although some have attempted unemployment normalizations based on changing definitions of the meaning of unemployment.
The following participation rate chart defines the problem.
Participation Rate by Age Group
click on any chart for sharper image
The above chart first appeared in my post Boomer Demographics and the Unemployment Rate. It is from a series by reader Tim Wallace. (click on link for rest of the series).
I added trendlines, a vertical black line, and circles to the chart.
Definitions and Notes
- The participation rate is the ratio of the civilian labor force to the total noninstitutionalized civilian population 16 years of age and over.
- The noninstitutionalized civilian population consists of civilians not in prison, mental facilities, wards of the state, etc.
- The labor force consists of those who have a job or are seeking a job, are at least 16 years old, are not serving in the military and are not institutionalized.
- There are strict requirements on what constitutes “seeking a job”. Reading want-ads or jobs on “Monster” does not count. One actually needs to apply for a job, go on an interview, or send in a resume.
- Please see Reader Question Regarding “Dropping Out of the Workforce” for an explanation of how the BLS determines someone is actively seeking a job.
Secular Forces
The trends in purple (age 25-54), and green (age 20-24) up until 1988-1990 or so reflect the entry of women into the workforce….
