Trends in Labor Force Flows during Recent Recessions: An Analysis of Labor Force Status Flows Reveals That the Current Recession, Characterized by the Slowing of Flows into Employment, Differs from the Recession of 2001 and Most Earlier Recessions, Which Were Marked More by Increasing Flows out of Employment

Article excerpt

The Current Population Survey (CPS) is the Federal Government's main source of information on the labor force status of the population. Employment and unemployment estimates derived from the CPS are watched closely each month to gauge the health of the labor market. During periods of economic weakness, unemployment rises and the employment-population ratio declines. Chart 1 shows the unemployment rate and the employment-population ratio from January 1990 to December 2008. From a recent low point of 4.4 percent in March 2007, the jobless rate increased by 2.8 percentage points, to 7.2 percent in December 2008. Over the same period, the employment-population ratio declined by 2.3 percentage points, to 61.0 percent.

The sources of the changes in these two measures, however, are not as readily apparent from the published CPS data. Are more persons exiting employment, or are fewer entering? Are more persons becoming jobless, or are those currently unemployed exiting unemployment at a slower rate?

Since October 2007, the Bureau of Labor Statistics (BLS) has produced a set of research series of labor force status flows that measure the month-to-month movements of individuals as they change their labor force status between employment and unemployment or enter or leave the labor market. These series extend from February 1990 to the present. This article uses those series to examine the sources of changes in employment and unemployment in labor market downturns since the 1990s.

The series measure the number of individuals in each of the three labor force states of employment (E), unemployment (U), or not in the labor force (N) in a given month who are in each labor force state in the next month. The set of possibilities for moving between labor force states can be expressed in the following 3 x 3 matrix:

                            Status in current month

Status in                                       Not in the
previous month      Employed     Unemployed    labor force

Employed               EE            EU            EN
Unemployed             UE            UU            UN
Not in the labor
  force                NE            NU            NN

The first letter in each cell of the matrix represents the labor force status of an individual in the previous month, the second letter the status in the current month. The cells on the main diagonal of the matrix (EE, UU, and NN) represent individuals who remained in the same labor force state over the month. The cells off the diagonal (EU, EN, UE, UN, NE, and NU) account for most of the change in the published labor force estimates. (The scope of the CPS is the civilian noninstitutional population aged 16 years and older. In addition to the flows shown in the matrix, there are smaller flows into and out of the scope of the CPS. These flows are relatively constant over time, and for the most part, they are not discussed in this article. (1)) As an example of the magnitude of the flows, about 16 million individuals, or 6.7 percent of the population aged 16 years and older, changed their labor force status in an average month in 2008. Nearly 5.8 million individuals entered the labor force in an average month, about equal to the number of persons that left the labor force. About 5.7 million entered employment in an average month, and 6.0 million exited. Finally, 4.2 million individuals entered unemployment each month, and 4.0 million individuals left unemployment. (2)

[GRAPHIC 1 OMITTED]

To describe trends in flows during recessions, periods of relative stability in the labor market--that is, the 6-month periods just prior to low points in the unemployment rate--are compared with subsequent periods extending from unemployment rate troughs to the next peak. The analysis that follows of the most recent labor market downturns shows contrasting patterns of labor market flows for the different downturns. Declining flows into employment were relatively more important than increasing flows out of employment in 2007-08 compared with 2001. …