William J. McKi...'s  Instablog

The heat chart below depicts the unadjusted US Employment to Population ratio between January 1948 and March 2012 inclusive as reported by the Bureau of Labor Statistics (BLS). Relative intensity is reported using a spectral color range between green and red, with green reflecting a higher than normal monthly ratio for this multi-year analysis.

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Many economists believe that reporting the number employed as a percentage of the civilian population provides a more accurate description of the current state of employment than conjecturing the number of "unemployed" in a population. The US employment to population ratio reached an historical peak of 64.4% on an annual basis in 2000. *The BLS defines employment and population (civilian noninstitutional) as follows:

Employment consists of all persons who, during the reference week (the calendar week including the twelfth day of the month), (a) did any work at all (at least 1 hour) as paid employees, worked in their own business or profession or on their own farm, or worked 15 hours or more as unpaid workers in an enterprise operated by a member of the family, or (b) were not working but had jobs or businesses from which they were temporarily absent because of vacation, illness, bad weather, childcare problems, maternity or paternity leave, labor-management dispute, job training, or other family or personal reasons, whether or not they were paid for the time off or were seeking other jobs.... The civilian noninstitutional population consists of persons 16 years of age and older residing in the 50 States and the District of Columbia who are not inmates of institutions (for example, penal and mental facilities and homes for the aged) and who are not on active duty in the Armed Forces.

Source: Bureau of Labor Statistics

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Unit labor costs (non-farm business sector) have declined sharply in the US since 2001. During the summer of 1973 (when I graduated from high school), unit labor costs stood at approximately one-quarter troy ounce of gold (0.26 troy ounces). By the end of 2011, unit labor costs had dropped to less than a tenth of an ounce of gold (0.07 troy ounces), for a total decline of approximately 73% for the period. Unit labor costs peaked at just over a third of an ounce of gold in 2001 (0.38 troy ounces), which implies an 80% decline in unit labor costs since the peak only 12 years ago.

The bottom line is that unit labor costs have declined dramatically in the US since 1973, and especially since 2001. In fact, US unit labor costs currently stand at their lowest levels since at least 1947. Why more of this labor cost savings is not finding its way into the pockets of workers is perhaps the central economic issue of our time.

According to the Bureau of Labor Statistics (BLS):

Unit labor costs can be computed by dividing employer labor costs (payments made directly to workers plus employer payments into funds for the benefit of workers) by real value added output. Unit labor costs can also be computed by dividing hourly labor costs by output per hour.

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According to data published by the World Gold Council and Federal Reserve Economic Data (FRED), US unit labor costs have declined from a peak of over eight-tenths of an ounce of gold (0.82 troy ounces) in 1970, to less than a tenth of an ounce of gold (0.07 troy ounces) in 2011. Thus, unit labor costs have declined by over 91% in the US since 1970 (using troy ounces of gold as the measurement standard).

The question that remains to be asked is why these labor savings (and increases in productivity) are not finding their way into the pockets of workers... According to the Bureau of Labor Statistics (BLS):

Unit labor costs can be computed by dividing employer labor costs (payments made directly to workers plus employer payments into funds for the benefit of workers) by real value added output. Unit labor costs can also be computed by dividing hourly labor costs by output per hour.

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