Regional Labor Market Recessions and Recoveries

Article excerpt

05.28.09

All the recent talk of "green shoots" has led to speculation about what a recovery of the U.S. labor market will look like. Will employment begin to bounce back in a V-shaped recovery curve, or will a U-shaped or even an L-shaped curve ensue? While this alphabet soup of recovery patterns (there's a W, as well) describe previous national labor market recoveries, the patterns also emerge at the regional level.

At the national level, labor market recoveries after the four most recent U.S. recessions (1981, 1990, 2001, and the current one) were not all alike. Once the trough in nonfarm payroll employment had been reached in the 1981 recession, employment rebounded sharply, and unemployment fell markedly. The next two recessions, on the other hand, experienced relatively "jobless" recoveries, with payroll employment growth picking up slowly (if at all) after the trough was reached and unemployment rising for several quarters. Seventeen months into the current recession, nonfarm payroll employment has declined 4.0 percent, and the unemployment rate has risen 4.0 percentage points. The trough in this recession will be both deeper and occur later than in the previous three. The current unemployment rate of 8.9 percent is still below what it was in the 1981 recession, but most analysts expect that it will continue to rise over the next several quarters.

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Labor market recovery patterns have varied across the states of the Fourth District in these recessions as well. Past business cycles indicate that Ohio typically has been relatively slow to recover lost employment. This was true in the recovery cycle after the 1981 recession, when Ohio's recovery lagged the nation, as well as after the 2001 recession, when Ohio experienced a truly "jobless" recovery, as nonfarm payroll employment remained essentially flat from 2002 through 2007. Since the start of the current recession, the percentage decline in Ohio's payroll employment has exceeded the nation's decline by 1.3 percentage points, but the decline is still less than in the 1981 recession. Ohio's unemployment rate rose to 10.2 percent in May, above the national unemployment rate but well below the peak unemployment rate of 13.9 percent, seen in the 1981 recession.

Pennsylvania's payroll employment, in contrast, initially held up relatively well in the current recession, although it started to deteriorate in 2009. Still, the state's labor market performance is better than the nation's as a whole, with Pennsylvania's unemployment rate a full percentage point below the national rate and its nonfarm payroll employment declining by 1.2 percentage points less than the nation's drop.

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Kentucky's employment losses in the current cycle are somewhat greater than the national decline. Kentucky has lost 4.5 percent of its nonfarm payroll employment, and the state's unemployment rate has risen to 9.8 percent. In terms of nonfarm payroll employment losses, this is shaping up to be Kentucky's worst downturn of the past four cycles. Kentucky's unemployment rate is up 4.3 percent, with 3.4 percentage points coming in the past five months.

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According to the current data, West Virginia's downturn occurred somewhat later and has been milder than Ohio's, Kentucky's, and Pennsylvania's. …