Federal Reserve Board research finds low population growth and near zero employment growth do not by themselves indicate labor market fragility

The Federal Reserve Board published a research note examining whether the recent slowdown in trend labor force growth, which has pushed the breakeven pace of monthly employment growth close to zero, makes the labor market more vulnerable to recessionary shocks. Using evidence from U.S. states and international comparisons, the note finds that labor markets are not systematically more sensitive to downturns when population and trend labor force growth are low. It stresses, however, that this does not mean the current U.S. labor market is on solid footing, only that low population growth and near-zero employment growth are not by themselves necessarily signs of weakness. At the U.S. state level, slower-population-growth states entered recessions with weaker labor force and payroll growth and experienced negative employment months more often, but their unemployment-rate dynamics during recessions were broadly similar to faster-growth states and there was no clear evidence they were more likely to experience state-level recessions. International evidence across OECD economies pointed in the same direction. Cross-country comparisons showed no meaningful link between lower population growth and higher unemployment volatility, panel analysis of recessions found lower pre-recession population growth was associated with smaller rather than larger rises in unemployment, and within-country comparisons showed low population growth episodes were not associated with higher unemployment and often coincided with slightly lower unemployment volatility. The note adds that these results are descriptive rather than causal and that the source and speed of population changes, including recent U.S. immigration dynamics, could still matter.