February 1978 is remarkable for the one reason that it was the last time the US labor force participation rate was at a low of 62.8%, about equal to the participation rate today. The level of participation would go on to increase to a high of 67.3% in March of 2000, declining to 66% in December 2007 before the start of the Great Recession. From that catastrophic economic event, the decline in participation was steep to a low of 62.4% in September 2015, going approximately sideways ever since.
From the media and some Fed bureaucrats we’ve been hearing often about the supposed correlation between jobs and inflation, a spin on the topic that near immediately raises the specter of perverse incentives involved with the chosen brand of inflation targeting and offending my sensibilities given that, for most wage earners, a job isn’t just something to occupy one’s time while waiting for death.
Until now, the offense and shock at the political acceptability of such glib discussions has been the center of my focus because what they say has a depth of meaning beyond controlling inflation. I’ve wondered if I am among the few who understand what’s being said, because I can’t really imagine how central bankers get away with publicly stating they are afraid of having too many employed people without suffering some sort of consequence, especially with a political ambiance of a high degree of economic dissatisfaction. Have the politicians even been listening to them? I think not.
Beyond that, though, I wanted to do a quick eyeballing of some data points to see if there is anything even close to a point in that particular claim. So I made a graph on FRED of changes in the LFPR and the PCE chained index going back to the year 2000 when the LFPR was at its peak through July 2017, the last month for which PCE data is available.
Amid bookends of a half decade LFPR atrophy, PCE inflation appears to have had a mind of its own. It would be interesting to possibly add the price of oil to this graph to see if there is a better explanation for movement in the PCE index than simply people becoming employed. As it stands with just these two data points, they don’t appear to have a causal relationship; and I do happen to be wearing my specs.
Since I couldn’t make heads or tails out of the claim that more people becoming employed causes inflationary pressure with this graph, I then added the employment to population ratio measure to it. Interestingly, it appears to be quite similar to the LFPR data, and I am still no closer to even cursory data that would lend at least some credibility to the claim. This doesn’t mean that the claim is wildly out of bounds of reality, but it isn’t showing up here. And I am somewhat unmotivated to try every possible measure of employment until I find one that fits. If it doesn’t show up in some of the widely used employment indicators, the claim is probably not as reliable as those making it seem to believe, and it would be helpful if they supply the data used to make such a determination.
By the way, on Bloomberg this evening, there is a report of NY Fed’s Dudley coming under fire for ethics issues after allegedly failing to report his sister’s employment at Wells Fargo during the fake account scheme while being the bank’s regulator.