Friday, July 29, 2011

A Puzzle? GDP Productivity and Employment to Population Ratio

Something I haven't seen in a comparison before is the relative change in GDP to the relative change in the employment to population ratio. With all the talk of structural versus non-structural unemployment, PSST versus low aggregate demand, and the liquidity trap versus NGDP targeting, I figured I would take a look at the historical relationship between relative changes in GDP and relative changes in the employment to population ratio.

Here's what the Federal Reserve Bank of St. Louis shows as the GDP/Employment relationship:

I didn't run any stats on the correlation because, well, I didn't have enough time on my lunch break, and because the graph is clear enough: GDP is highly correlated with the employment to population ratio, especially over the last 30 years.

I wanted to look closer at trends, so I graphed each of the series separately, along with their 20 year running averages. You'll notice that the average rate of growth of each has been declining for the last few decades.