The Demographics of Declining Oil Prices and Job Growth in the US

The average consumer in the U.S. sees a decline in oil prices, and thus gasoline prices, as something akin to a tax cut. More money is left over to spend on other stuff. But John Mauldin, in his Thoughts From the Frontline newsletter (a free subscription), notes that it also means that jobs will be lost in those companies hurt by the drop in oil prices. Will this lead to higher unemployment and potential trouble for the U.S. economy down the road? The answer is not necessarily, because the demographics of the U.S. suggest that a relatively low level of job growth should accommodate future labor needs. In essence, population projections from the U.S. Census Bureau suggest that we may need fewer jobs in the future than in the past. Here's the line of thinking on this:

Job growth is a function of both the supply of and demand for labor. With labor force participation having fallen sharply since the Great Recession and growth in the working-age population slowing, growth in the supply of labor, measured by labor force growth, looks to have downshifted in recent years. As a result, the number of new jobs needed each month to keep the unemployment rate steady has also declined. We estimate that from 2015 to 2020, payroll growth of around 65,000 jobs per month should be sufficient to absorb new entrants into the labor force and to exert neutral pressure on the unemployment rate. This marks a notable downshift from a trend of around 150,000 in the 1980s and 1990s, and even the early 2000s when trend employment growth slowed to around 120,000.

An immediate takeaway from this analysis is that if job growth continues to bump along in the 200,000 range, it will not be too long before there is wage pressure, especially in skilled jobs. That would be good news for workers. If we couple that pressure with a change in the silly rule that says that anyone working more than 30 hours is considered to be full-time and move the number of hours considered to be full-time work to 40 (I think that has a good possibility of passing next year), it will mean that workers (especially those who are younger) get more hours, more income, and better jobs. It will also mean that the unemployment rate will trend down, even if employment growth is not up to historical standards.

This reasonably rosy scenario will be good news to the increasingly larger older population that will be depending on these younger people to keep the economy humming along to pay their pensions and health care--that generational bond that is so important because those young people will someday be older themselves, if they are lucky.