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A Second Look at the Employment-to-Population Ratio

Pat Higgins, senior economist in the Atlanta Fed’s research department - “This analysis is a companion piece to my Atlanta Fed colleague John Robertson’s recent macroblog post. John’s blog highlighted some findings of a recent New York Fed study by Samuel Kapon and Joseph Tracy on the employment-to-population (E/P) ratio. Their work has received considerable attention in the media and blogosphere (for example, herehere, and here). Kapon and Tracy’s final chart (reproduced below) has received particular scrutiny…We see that successive birth-year cohorts born between 1925 and 1950 had steadily increasing labor force attachment. Attachment for more recently born cohorts has leveled off and even declined slightly. People born in the 1990s have very low labor force attachment by historical standards. The inclusion of the “1990s—decade of birth” dummy variable in the Kapon and Tracy research probably implies that their model is interpreting much of this decline as structural. However, an alternative interpretation is that the decline is cyclical, because persons born after 1990 have been in an environment of high unemployment for most of their short working lives.”

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