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The Atlanta Fed's macroblog provides commentary on economic topics including monetary policy, macroeconomic developments, financial issues and Southeast regional trends.

Authors for macroblog are Dave Altig and other Atlanta Fed economists.


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March 02, 2012


How many jobs does it take? Introducing the Atlanta Fed's Jobs Calculator

When I began my career at the Atlanta Fed in 2003, the U.S. labor market had not yet started creating jobs on net again after the 2001 recession. The question being asked over and over was, "How many jobs does the U.S. economy need to create in order to lower the unemployment rate by a certain amount?" I even participated in the discussion by writing an Economic Review article on the subject.

Of course, the Federal Reserve's interest in how many jobs it takes to lower the unemployment rate comes directly from Section 2A of the Federal Reserve Act, which states:

"The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy's long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates."

This passage is often referred to as the Fed's "dual mandate" for monetary policy. Put simply, the Fed wants to achieve (1) stable prices and (2) maximum employment. Reduction in the unemployment rate is commonly used as a measure of the progress toward the goal of maximum employment.

In a technical sense, answering the question "How many additional jobs over the next Y months are needed to lower the unemployment rate by X percentage points?" does not require a difficult calculation. But it does require some knowledge about the U.S. Bureau of Labor Statistics's (BLS) Household Survey, which gives us the official measure of the U.S. unemployment rate. This survey is based on estimates of the size of the labor force and the number of people employed that are inferred from a survey of individual households. The Household Survey differs from the BLS's Payroll Survey, which provides another estimate of employment from a survey of the payroll of individual businesses. Early each month, the estimate of employment from the Payroll Survey shares the spotlight with the Household Survey's estimate of the unemployment rate when the BLS releases its monthly employment report.

To calculate the change in employment needed to achieve a particular unemployment rate requires an assumption about how much the labor force will grow or an assumption about labor force participation given a particular population growth rate. The more the labor force grows (or the participation rate increases), the more jobs the economy needs to create, on net, to absorb the larger labor force.

In recent months, economists again (here and here) are asking (or pontificating on), "How many jobs does it take...?" To help answer that question, we at the Atlanta Fed have developed a new tool that will make the calculation for you. The tool—called the Jobs Calculator—is available on the Atlanta Fed's Center for Human Capital Studies' web page. (Readers should note that the calculator currently uses data from the January employment report, the most recent one available. When the February report is released on March 9, the data the calculator uses will be updated.)

Using the tool is as simple as choosing the target unemployment rate you want to achieve and when you want to achieve it. The Jobs Calculator produces the average number of jobs that need to be created, on net, per month in order to reach the target in the specified time period. You can even make some adjustments in the assumptions about labor force participation and population growth (and hence labor force growth). Of course, the calculator doesn't answer the questions of what numbers to plug in or why. That's up to you.

Please tell us what you think.

Julie Hotchkiss By Julie Hotchkiss, a research economist and policy adviser in the Atlanta Fed's research department

 

March 2, 2012 in Data Releases, Employment, Labor Markets | Permalink

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Comments

I like the tool! I understand that it's still fresh out of the early birth pangs so it will need some modifications and tinkering as time goes on.

Still, I found it very pleasing that more and more Fed employees are finding their voice and going online to blog.

As a layman, I've often found it easier to enjoy economics since the examples are those I am interested in. The learning process is uneven but at times surprisingly deep.

These tools may help those like me who want to make sense of the economic environment very quickly, but in our own fashion, and that's a good thing. Of course, calculating these things aren't hard but the time effort is the one greatly saved in and that is the big factor for me.

Posted by: Layman | March 03, 2012 at 03:32 PM

"will make the calculation for you"

Pay no attention to that black box behind the curtain.

Or the Devil's Dictionary used to define such concepts as "Labor Force Participation".

Posted by: sc721 | March 04, 2012 at 11:35 AM

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