Breakeven Employment Growth: A Simple but Useful Benchmark

Each month, we hear about the number of jobs the U.S. economy added. A typical headline might say, “The economy gained 151,000 jobs in February.” But how do we know whether that’s a strong number or a weak one?

A simple way to assess job growth is how it compares to growth in recent months or during upswings or downturns in the labor market. A more conceptual approach is the idea of “breakeven employment growth.” It’s a way to put job growth numbers in context. In short, it tells us how many new jobs we need each month to be consistent with a specific target unemployment rate. For example, say you set the target to be last month’s unemployment rate. If employment grows faster than the breakeven number, unemployment may fall. If job growth falls short, unemployment could creep up—even though the economy is still adding jobs overall.

Breakeven Growth: A Simple but Useful Concept

Breakeven employment growth gives us a helpful benchmark. Rather than reacting to job numbers in isolation, it lets us ask: “Was that enough to keep up with the growing labor force?”

The idea is straightforward: Each month, the number of people available to join the labor force changes because of factors like immigration and aging (people dying and people reaching age 16). Not all of those new people join the labor force, but many do. To prevent the unemployment rate from rising, we need enough job growth to match that expanding labor force.

Mathematically, breakeven employment growth is the number of new jobs consistent with a target unemployment rate given a certain level of labor force growth and participation:

Breakeven Employment Growth = Labor Force Growth × (1 - Unemployment Rate)

Labor force growth, in turn, depends on population growth and the labor force participation rate (the share of the people age 16 and older who are either employed or unemployed):

Labor Force Growth = Population Growth × Labor Force Participation Rate

What Goes into a Breakeven Growth Estimate?

The breakeven number isn’t fixed—it depends on the assumptions behind it. Here are the key ingredients:

• Target unemployment rate. For a short-run estimate, the current unemployment rate is often used as the target—providing a benchmark for how many jobs are needed to keep the rate steady.In this case, the breakeven employment growth formula simplifies to the employment-population ratio multiplied by population growth. Alternatively, one can use a historical average, such as 4%, which many economists consider close to full employment.
• Population growth. This is usually based on projections from the Congressional Budget Office (CBO) or the U.S. Census Bureau, with a focus on the civilian noninstitutionalized population age 16 and over—the group available to participate in the labor force.
• Labor force participation. Not everyone in the working-age population participates in the labor force. The Current Population Survey (CPS), which surveys households, is the best source with up-to-date data to estimate what share of the population is either working or actively looking for work.
• Survey differences. The labor force participation rate comes from the CPS, while the headline number of payroll jobs comes from the establishment survey conducted by the Bureau of Labor Statistics. Because these two surveys measure employment differently, a small adjustment factor must be applied to ensure consistency.
• Short versus long run. Projections for population growth rates are available over short horizons (typically the current year) and longer ones. Similarly, labor force participation rates may hold steady in the short run but shift over time because of demographic changes like aging and rising education levels. As a result, one can construct both short-run and long-run estimates of breakeven growth depending on which inputs are used.

A Recent Estimate

We now present a short-run estimate using data for February 2025.

• The CBO projects that the working-age population will grow by about 260,000 people per month in 2025.
• The average labor force participation rate over the past year was 62.6%.
• We use the February 2025 unemployment rate as our target: 4.1%, which is near full-employment levels.
• We adjust for survey differences using a ratio of 0.979, which reflects the average level of employment in the establishment survey relative to that in the household survey.

Putting it all together, this gives us a breakeven employment growth estimate of about 153,000 (to be exact, 152,895) jobs per month.

What does this mean? If monthly job growth comes in at around 153,000, we’d expect the unemployment rate to stay roughly steady. A larger number might push unemployment down; a smaller one could let it drift up.

For February 2025, the jobs report initially showed a monthly gain of 151,000 jobs and a slight rise in the unemployment rate to 4.1% from 4.0% in January—a movement broadly consistent with the conceptual framework behind the breakeven growth estimate. Unlike the unemployment rate, however, the payroll number is preliminary. In the subsequent release for March, the February payroll number was revised downward to 117,000. This result is still consistent with a higher unemployment rate, but it points to why this analysis can be tricky: The breakeven growth estimate and the unemployment rate don’t get revised while the payroll numbers do.

For March 2025, our breakeven growth estimate was also approximately 153,000 (to be exact, 152,679). However, the reported data showed a much stronger-than-expected gain of 228,000 jobs, while the unemployment rate increased further to 4.2%. Conceptually, such strong employment growth should have led to a decline in the unemployment rate, not an increase.

The discrepancy likely stems from one or both of the following factors:

• Underestimation of labor force growth. If more individuals entered the labor force than anticipated (because of a higher participation rate or population growth above the projected value), that could offset employment gains and push the unemployment rate higher.
• Divergence between CES and CPS employment measures. Larger-than-usual differences between the two surveys may also be contributing, relative to the trends observed over the past 12 months.

Quantitatively, the labor force participation rate was essentially unchanged between February and March 2025, and the divergence between the two employment measures remained similar—making it unlikely that either explains the discrepancy. This leaves month-to-month population growth as the most plausible source, though that statistic is not available in real-time. Hence, these results highlight an important caveat: While the breakeven growth estimate is a useful tool for assessing labor market balance, realized data may occasionally diverge from its conceptual expectations.

How Sensitive Is the Estimate?

As already hinted at above, the biggest swing factor in the breakeven growth rate is the population growth rate. Take 2024 as an example: The CBO estimated monthly population growth of about 312,000 for that year, higher than estimated growth for 2025. Using the 12-month moving average of the labor force participation rate and the previous month’s unemployment as target, we calculated the breakeven growth rate for each month in 2024 and then averaged the results, which implies a breakeven rate of approximately 183,000 jobs per month. This figure falls well within economists’ 2024 estimates of monthly job growth, which ranged from 110,000 to 215,000 in the Blue Chip survey. In reality, payrolls grew by an average of 166,000 jobs per month in 2024—modestly below our average breakeven growth rate estimate for that year. Consistent with this shortfall, the unemployment rate rose from 3.7% in January 2024 to 4.1% by December. This illustrates a key point: If population growth slows (which is expected to occur in 2025), breakeven employment growth falls too.

Likewise, if the target unemployment rate is lowered—for example, from 4.2% to 3.5% (the lower range of the longer-run unemployment rate in the Federal Reserve’s most recent Summary of Economic Projections)—the economy would need faster job growth to hit that lower rate. However, the impact of the change in the target is much more modest, with the breakeven growth rate for February 2025 rising to just 153,795—about 1,000 jobs more per month.

Why It Matters

Breakeven employment growth offers a valuable lens for interpreting monthly jobs data. Rather than asking “Is 151,000 a big number?” in the abstract, we can compare it with the growth rate needed to maintain current labor market conditions.

If job growth consistently beats the breakeven rate, this may signal rising demand for workers—and possibly tighter labor markets ahead. If it falls short, unemployment could rise despite job growth being positive.

At the same time, breakeven growth is a simple benchmark, not a comprehensive forecast. It doesn’t account for changes in the labor market (such as higher job-finding rates or mass layoffs), or broader economic shocks. Moreover, when population growth shifts significantly during the year, annual projections by the CBO might not be a reliable guide.

Still, as a rule of thumb, it’s a useful tool. In a labor market that’s constantly evolving, breakeven employment growth helps us ask the right question—not just how many jobs were added, but whether the increase is enough. However, as our comparison between February and March 2025 shows, in some months the payroll jobs and unemployment data and the breakeven growth estimate largely agree, while in other months there can be a sizeable disagreement. Finally, one must be aware that there can be sizeable revisions to the jobs report in subsequent months, so any disagreement between the payroll jobs and unemployment data and the breakeven growth estimate may be amplified or reduced upon such revisions.

Note

1. In this case, the breakeven employment growth formula simplifies to the employment-population ratio multiplied by population growth.