Employment in Services Industries Affected by Recessions and Expansions: Although Employment in the Services Division Has Had a Recession-Resistant Image, Some Industries within Services Do Lose Jobs While Others Gain More Jobs Than Usual during Recessions

By Goodman, William C. | Monthly Labor Review, October 2001 | Go to article overview

Employment in Services Industries Affected by Recessions and Expansions: Although Employment in the Services Division Has Had a Recession-Resistant Image, Some Industries within Services Do Lose Jobs While Others Gain More Jobs Than Usual during Recessions


Goodman, William C., Monthly Labor Review


The services industries' reputation of resisting recessions is well deserved in one sense, as most of the major groups within the Services Division, as well as the division as a whole, generally do not show a net decline in employment from the official start of a recession period to its completion. Employment in the division, however, is affected by recessions. Its growth in jobs slows considerably, and with statistical significance. Furthermore, most of the division's 16 major industry groups decelerate in job growth or lose jobs during recessions. Five major groups in Services, however, are at least slightly countercyclical, gaining jobs faster during recessions than in normal times. One extremely large and important group, healthcare, is countercyclical. Furthermore, healthcare shows countercyclicality with statistical significance. This article identifies and discusses the cyclical and countercyclical industry groups of the Services Division and some of the different causes of cyclical and countercyclical trends.

Methodology

For each employment series examined in this analysis, quarterly averages were computed from seasonally adjusted monthly observations so that each series could be compared in trend with GDP, which is available as a quarterly series. Next, the quarter-to-quarter percent changes of each series were calculated. Within each series, the percent changes were divided into two groups: those during officially declared recessions and those outside of official recessions. The average quarterly percent change during recessions and the average quarterly percent change during other times were calculated. The difference between the two averages determined whether the series is classified in this article as cyclical or countercyclical; when the average percent change during economic expansions is greater than the average change during recessions, the series is called cyclical, and when the average percent change during recessions is greater than that during economic expansions, the series is considered countercyclical.

The period used in this article generally starts at the beginning of the individual series and continues through the third quarter of 2000. (See table 1 for dates.) Later data were not used because the state of the economy (that is, in expansion or in recession) during the recent period has not been determined as of the writing of this article. The employment trends in Services since the third quarter of 2000 are described in the second-to-last section of this article.

A Student's t test was applied to the recession and nonrecession changes to see if the difference between the two groups of changes is statistically significant. Statistical significance implies that the series is cyclical or countercyclical by its nature rather than by chance and therefore further implies that the series is likely to remain cyclical or countercyclical in the future, unless some aspect of the industry changes in a way that affects the trends of the industry's employment.

The approach used in this article, then, is designed to show differences in job trends between periods of general economic expansions and periods of recession. The results do not reflect another form of cyclicality: the degree of association of an industry's job trends with GOP trends within periods of general economic growth (neither within a single period of expansion nor across various expansions). Similarly, the results stated here do not reflect the degree of association of industry-specific employment change with GDP change within a recession, nor across various recessions. In another article, correlations between the trend of a specific industry and the trend Of GOP capture how the industry does or does not accelerate or decelerate along with GDP over time regardless of whether the economy continues to expand, turns, or continues to decline. (1) By contrast, this article primarily describes differences between a series' trend during recessions and its trend during general economic expansions.

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Employment in Services Industries Affected by Recessions and Expansions: Although Employment in the Services Division Has Had a Recession-Resistant Image, Some Industries within Services Do Lose Jobs While Others Gain More Jobs Than Usual during Recessions
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