Although the recession has not officially ended, it is likely to be the longest since 1945. It is also associated with the largest drop in payroll employment of any U.S. recession, with the largest jump in the unemployment rate. From the beginning of the recession in December 2007 to the end of February 2010, total nonfarm payroll employment declined about 8.4 million, or 6.1% (Source: Federal Reserve Bank of Cleveland, March 22, 2010). In the same period, the unemployment rate jumped from 5% to 10.1%.
The Overall Picture
In a typical postwar business cycle, the unemployment rate starts leveling off about 14 months after the start of a recession (recessions typically last around 10 months), but it usually takes more than 30 months to return to prerecession levels. The current labor market downturn presents a drastically different picture. The unemployment rate did not stop rising until 23 months after the start of the recession, and the cumulative rise is well above the normal range.
Similarly, in a typical recession, payroll employment starts to decline at the start of the recession and takes about 12 months to stabilize. Unlike the unemployment rate, payroll employment goes back to prerecession levels relatively quickly once the recession ends, on average 21 months after the start of the recession. The past two recessions, in 1990-91 and 2001, were exceptions, taking 31 and 47 months respectively for employment to recover. Thus, these recessions have come to be known as jobless recoveries. The pattern of employment decline in the present downturn resembles the last jobless recovery in many ways, suggesting a large decline over a prolonged period.
The unemployment rate reports the number of workers who are unemployed as a fraction of the labor force, but it does not indicate whether the rate is high because people are staying unemployed longer or because more workers have lost their jobs. That information is found in the job-finding and separation rates. Recessions can differ in how much either of these rates contributes to the overall increase in unemployment, which affects the course of the recovery.
In general, during recessions, separations start rising as the economy enters a downturn, and job finding rates start declining. After some initial rise in unemployment, mostly in the form of layoffs, separations usually start tapering off before the unemployment rate peaks. What accounts for most of the subsequent rise in the unemployment rate is the low rate of job finding among the unemployed, implying that the average duration of unemployment goes up. This suggests that most firms are not ready to begin rehiring as soon as they stop cutting jobs, even though they may have significantly reduced their payrolls. As the economy finally starts recovering, durations get shorter because firms create new jobs and absorb part of the unemployed.
Though separations increased sharply early on in the current recession, more than 95% of the change in the unemployment rate can be explained by the decline in job finding rates. In other words, the sharp rise in unemployment is not due primarily to a wave of job losses but due to the fact that once unemployed, workers' chances of finding employment have fallen dramatically. This could have a number of important consequences for the recovery.
Long-term unemployment reduces workers' industry- and occupation- specific skills, which reduces productivity when they find a job. Once workers find a job, their new starting wages are lower than similarly educated workers, and this disparity continues for a long time. Additionally, many workers are tempted to take the first job they find after a long period of unemployment, regardless of how good a match the job is for them. They will also be more likely to change employers when job prospects improve. This excessive labor market churning could be detrimental to overall productivity during the recovery.
Although the overall unemployment situation has been bleak, the effects have not been evenly distributed across demographic groups. The difference between men and women has garnered the most attention, because men accounted for 78% of the job losses despite constituting 51% of nonfarm employment at the start of the recession. The dominant explanation for this discrepancy is the difference in the severity of the recession across industries. Men predominate in goods-producing industries, such as natural resources and mining, construction, and manufacturing, which accounted for about half of total losses. Women comprise the majority in recession-resistant fields, such as education and health care, which saw an increase in jobs during the recession.
However, men always bear the brunt of job losses during recessions. Between 1969 and 1991, male employment fell by an average of 3.1% during the five recessions experienced during the period. Female employment, on the other hand, tended to rise by an average of 0.3% during recessions (Source: The Effects of Recession Across Demographic Groups, September 2009).
Between the fourth quarter of 2007 and the second quarter of 2009, total employment losses amounted to 4%. Male employment fell by 5.7% and female employment by 2%. Employment of single adults fell at more than twice the rate of married individuals, while white employment fell by only two-thirds as much as black employment.
By age, employment fell 14.8% for those ages 16 to 19, 7.1% for those ages 20 to 24, 5.2% for those ages 25 to 34, 7.3% for those ages 35 to 44, 2.7% for those ages 45 to 54, and increased 3.8% for those over age 55.
By education level, employment fell 8.8% for those with no high school diploma, 5.3% for those with a high school diploma, 3.2% for those with some college, and only .1% for those with a bachelor's degree or higher.
What do these differences indicate? The primary reason cited for the difference between males and females is the change in industries. Men are also less likely to have attended college than women. Single people might have lost proportionately more jobs because the average single person is younger, thus less experienced and less educated, than the average married person.
At this point, whether we have a muted, jobless recovery or a rapid one featuring full employment will depend on the demand for labor. The unemployment rate is stabilizing, but the demand for workers has not been showing any signs of major improvement yet. Of course, some kinds of slack might exist that prevent rising demand for labor from translating immediately into new jobs. Employers could demand more hours from current employees before hiring new employees. The average weekly hours of production workers, which stand at 33.1 hours, indicates that this is likely to happen. Similarly, part-time employees can be made full-time employees.
No two recessions are the same. Structural changes, such as labor force participation, the skill level of workers, and the shift from manufacturing to services, can make comparisons with prior recessions difficult. However, one thing is for sure -- this recession is unusual in the depth and breadth of employment losses.