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The following graph of the employment to population ratio was obtained from the Federal Reserve Economic Database (FRED). The employment to population ratio shows the percentage of American civilians age 16 and over that happen to be employed. Recessions are shaded gray.

Figure 1.

The graph shows that between about 1960 and 2000, the percentage of civilians that were employed tended to rise over time, though those increases were interrupted with big drops in the ratio during recessions. That increase has a number of explanations, among them that women in the workplace is no longer a scandalous thing, that a single paycheck is often no longer enough to sustain the typical household, and that as manual labor’s share of the workforce has fallen retiring later has become more and more feasible.

Since 2000, the picture is more nuanced – there has still been an increase in the percentage of American civilians that are employed during non-recessionary periods, but that increase has not been enough for many people who lost their jobs during recessions find new employment. In fact, the recent drop in the employment to population ratio has brought the percentage of civilians with jobs down to levels last seen in 1983.

So what is going on here? One clue can be seen by looking at how quickly the economy has regenerated lost jobs after each recessions. The following graph shows the employment to population ratio in months following recessions relative to the employment to population ratio in the month that a recession ends. Thus, if the employment to population ratio has risen since the end of a recession, that number should be above 100%, and if it has fallen, that number should be below 100%. Every recession since 1948 – the first year for which employment to population data is available – is shown on the graph. Because, for reasons that will be evident in a moment, I had to label each recession (or rather, post-recession period), the graph is a little busy. Note also that I am assuming that the most recession ended in June of 2009, even if the recovery has been very weak and unpleasant since.

Figure 2.

Now, assuming that the latest recession ended in June of 2009, we’re about 14 months out from last recession. The first thing the graph shows us is that for most of the recessions in our sample, the employment to population ratio continued decreasing after the recession ended; that is to say, job losses continued after the recession ended. And for four of the eleven recessions (including the latest one), the employment to population ratio 14 months after the end of the recession is still below where it was when the recession ended.

But look closer, and you see something else, something more disconcerting. It seems that the more recent the recession, the poorer the job recovery. In fact, three worst job recoveries came after the last three recessions, and the 1991 and 2001 recessions were pretty mild. (And, to repeat a point from above… the job market never quite recovered after the 2001 recession.)

Possible reasons for this long term trend in the worsening of job recoveries that come to mind include:
1. simple mathematics – as the employment to population ratio rises, recovering to that high level becomes harder and harder. Of course, the latest recession belies that, though in fairness, it was a much more severe downturn.
2. it has, over time, become easier to fire employees and move the jobs to jurisdictions where the new employees are less likely (i.e., able) to complain. In the 50s and 60s, jobs started migrating from the Midwest to the South (more union to less union), and now they’re migrating out of the country altogether. That makes it easier for a company to operate with fewer employers for extended periods of time, and thus expand for a while after the end of a recession without bringing on new workers.

Your thoughts?

5 Responses to “Employment During Recoveries from Recessions – Long Term Trends”

  1. Noni Mausa says:

    I am having a bit of trouble constructing this question, so bear with me.

    It seems that in the time span we’re looking at, we don’t just have employed and unemployed people in your population of people over 16. Rather, you have the employed, the unemployed, and the gainfully unemployed. (Mostly wives.)

    The drop in the numbers of gainfully unemployed (i.e. rise of women entering the workplace) changed the rules of the game. I wonder sometimes what these sorts of graphs would look like if we still had the idea of one partner legitimately able to stay home and the working partner paid enough so the other could do this.

    Hmm. Looking at this, I wonder what my question is? That a culture of two-earner families is inherently less stable than that of one-earner families? If so, the deeper job losses and slower recoveries would seem to support that idea. But how on earth to return to a time when one spouse was expected and approved of staying home? or could afford it? My pet solution is a GAI, but we’re 50 years from that sensible idea — if ever.

    BTW, in Fig 2, the three latest “recoveries” don’t look like recoveries at all. They look like dead cats without any further to fall.

    • Mike Kimel says:

      Like you, I’m not sure what to make of this other than its not good. Clearly, these days two incomes per household are needed to maintain a middle class standard of living in most families. The longer people are unemployed, the harder it is to recover. I don’t know what to say other than this isn’t good.

  2. [...] Employment During Recoveries from Recessions – Long Term Trends On August 30, 2010 by Mike KimelCross posted at the Presimetrics blog [...]

  3. Michael says:

    I think the introduction of women to the work force explains some of the job growth in the 60s and 70s. What the graphs don’t show is the explosion of the cost of living now versus then. The fact is that since the 60s the cost of living has risen so much that even by adding a second income, most families are behind the curve. Housing used to represent 25% of HHI, it now represents over 50%. I’m not just talking about the people who bought a larger house than they could afford, I’m talking about regular people trying to live within their means.
    So, while the move to 2-income families impacts cost-of-living, and may account for some growth in the 60s, 70s, and 80s, I don’t think it has much of an impact on the graphs here.
    The conclusion is right on from my experience and knowledge: China and India have entered into free trade with the US and American corporations are doing one of two things:
    • outsourcing to cheaper workforces overseas when faced with an economic crisis or need to increase profit margins
    • piling more work on the existing workforce

    Let’s take the last bit first: the recession hits. The work required of a company decreases by a bit so they lay people off, probably more than they need anticipating the worst. Existing staff picks up the slack. The economy begins to recover, companies start increasing their workload but they’ve found that the existing staff can pick it up by working longer hours, through weekends, at home. They’re not going to complain right? At least they still have jobs. In some cases, rather than bringing back their laid off employees, they bring in new ones for lower wages, or promoting junior staff to higher positions. The outcome is that fewer people with less experience are handling an ever expanding workload.

    This has kept unemployment rates high, especially among college-educated and experienced employees who would request higher pay. Unfortunately, it’s difficult for those people to trim down. They bought their house in a high market with a higher salary. Even if they wanted to trim down to match a lower salary, they can’t afford to lose money they don’t have on a house they can’t afford to replace. I’d say, according to answers I’ve received from friends and relatives that there has been a significant drop in salaries, bonuses and benefits of all industries. Of course that’s contradictory to the rising profits of their companies. And don’t think for a minute that the guys who made these decisions are seeing lower salaries. They’re giving themselves raises!

    The first thing is what is most disturbing and difficult to recover from: loss of jobs overseas. All-American companies like Nike, Ford, Apple have been off-shoring work for years. America has lost it’s position as a manufacturing leader. This country currently make no electronic products. Workers without college degrees can’t find blue-collar work, even white-collar workers with college degrees are finding the need to have an advanced degree to compete. Everything we buy comes from overseas, from our televisions to the lumber that built our house.
    Unless the government starts using tax incentives or fines to keep jobs here or bring them back, America will either continue to have continued and growing unemployment to the point of riots (who do you think makes up a large chunk of the Tea Party?) or unions will collapse, workplace regulations will be overturned and we’ll begin to see the kind of employment enjoyed by millions of Chinese children. Don’ think it will happen? Do a little research. The army used to guard factories and government buildings against workers replaced by scabs for a fraction of their wages. whole towns full of tents were erected. Families were torn apart as wage earners had to travel to find work.
    It is not good at all.

    • Mike Kimel says:

      I suspect you are right about a) the rising cost of living being a bit part of it and b) the fact that jobs are going overseas is going to make recovery harder (or iffier).

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