Employment and Real GDP, Real GDI

Calculated Risk:

  Last night I excerpted from a speech by St Louis Fed President James Bullard. I noted that GDI might be more useful in measuring the recovery than GDP (they are conceptually equivalent).

 

As a followup to that post (and also to the previous post with the forecast from UCLA-Anderson's Ed Learmer), here are two graphs looking at payroll employment vs. the change in real GDP and real GDI.

 

At the bottom of this post are estimates of the unemployment rate in 12 months for several growth scenarios. Note: This is similar to Okun's relationship between GDP and unemployment.

  Click on graph for larger image.

 

The first graph shows the four quarter change in real GDP vs. the four quarter change in employment, as a percent of payroll employment (to normalize for changes in payroll over time).

 

The second graph shows the same relationship, but uses Gross Domestic Income instead of GDP.

 

There is a clear relationship - the higher the change in the real GDP or real GDI, the larger the increase in payroll employment. The R² for GDI is slightly higher than for GDP (0.80 vs. 0.74).

This shows that real GDP / real GDI has to grow at a sustained rate of about 1% just to keep the net change in payroll jobs at zero.

 
A 3% increase in real GDI (over a year) would lead to about a 1.4% increase in payroll employment. With approximately 130 million payroll jobs, a 1.4% increase in payroll employment would be just over 1.8 million jobs over the next year - and the unemployment rate would probably remain close to the current level (9.7%) depending on changes in population and the participation rate.

 

Posted via email from Jim Nichols