Unemployment and Employment Trends Before and After the End of Recessions

Unemployment and Employment Trends

Before and After the End of Recessions

name redacted

Specialist in Labor Economics

December 21, 2010

Congressional Research Service

7-....

www.crs.gov

R40798

CRS Report for Congress

Prepared for Members and Committees of Congress

Unemployment and Employment Trends Before and After the End of Recessions

Summary

Although the 11th recession of the postwar period officially ended in June 2009, one economic

indicator that is very visible in people’s daily lives—the unemployment rate—has continued to

rise. With the unemployment rate at 9.8% in November 2010, those still employed or able to find

jobs are quite likely to know personally others who have been less fortunate. The still high

unemployment rate partly reflects the slow pace at which employers have been adding workers to

their payrolls despite enactment of job creation legislation in February 2009 (the American

Recovery and Reinvestment Act, P.L. 111-5), March 2010 (the Hiring Incentives to Restore

Employment Act, P.L. 111-147), and August 2010 (the Education Jobs Fund at Title I of the FAA

Air Transportation Modernization and Safety Improvement Act, P.L. 111-226).

This report addresses the question of when one might reasonably expect to see sustained

improvement in the unemployment rate and a steady resumption of job growth following a

recession’s end. It first provides an explanation of why it is unlikely that the unemployment rate

would begin trending downward and the number of jobs on employer payroll would begin

trending upward immediately after the start of a recovery. It then analyzes the trend in the

unemployment rate and jobs data before and after the bottom of the prior 10 business cycles to

confirm these statements.

The report concludes by noting that the much delayed improvement in the labor market following

the 1990-1991 and 2001 recessions led to the ensuing rebounds of the economy being referred to

as jobless recoveries. With employment at public and private sector employers similarly having

failed to show consistent improvement for well over a year after the recession’s end, many

observers think that the nation has been experiencing another jobless recovery.

Congressional Research Service

Unemployment and Employment Trends Before and After the End of Recessions

Contents

Explanation of Trends in Unemployment and Jobs Around the Bottom of the Business

Cycle .......................................................................................................................................1

Trends in Unemployment and Jobs Before and After the End of the 10 Prior Recessions .............2

Figures

Figure 1. Number of Months into Recovery When Sustained Job Growth Began .........................3

Tables

Table 1. The Unemployment Rate at a Recession’s End and at the Rate’s Peak ............................2

Contacts

Author Contact Information ........................................................................................................4

Congressional Research Service

Unemployment and Employment Trends Before and After the End of Recessions

lthough the 11th recession of the postwar period officially ended in June 2009, one

economic indicator that is very visible in people’s daily lives—the unemployment rate—

has continued to rise. With the unemployment rate at 9.8% in November 2010, those still

employed or able to find jobs are quite likely to know personally others who have been less

fortunate. The still high unemployment rate partly reflects the slow pace at which employers have

been adding workers to their payrolls despite enactment of job creation legislation in February

2009 (the American Recovery and Reinvestment Act, P.L. 111-5), March 2010 (the Hiring

Incentives to Restore Employment Act, P.L. 111-147), and August 2010 (the Education Jobs Fund

at Title I of the FAA Air Transportation Modernization and Safety Improvement Act, P.L. 111226).

A

This report addresses the question of when one might reasonably expect to see sustained

improvement in the unemployment rate and a steady resumption of job growth following a

recession’s end. It first provides an explanation of why it is unlikely that the unemployment rate

would begin trending downward and the number of jobs on employer payroll would begin

trending upward immediately after the start of a recovery. It then analyzes the trend in the

unemployment rate and jobs data before and after the bottom of the prior 10 business cycles to

confirm these statements.

Explanation of Trends in Unemployment and Jobs

Around the Bottom of the Business Cycle

A few definitions are called for before proceeding with the explanation. To begin with, the official

definition of the unemployment rate prescribed by the U.S. Bureau of Labor Statistics (BLS) is

the percentage of persons in the civilian labor force age 16 and older who are unemployed. The

labor force, in turn, is defined as the number of employed and unemployed individuals in the

civilian noninstitutional population age 16 and older. Lastly, unemployment is defined as the

number of people who actively searched for work in the four weeks before the week in which the

Census Bureau administers the Current Population Survey to members of households.

Mathematically, the unemployment rate is expressed as:

the number of unemployed persons

the number of unemployed and employed persons

The unemployment rate consequently may move up or down depending not just on a change in

the number of workers who lack jobs (the numerator) but also on a change in the number of

individuals participating in the labor force (the denominator). The size of the labor force may

decrease during a recession in part because unemployed workers who give up searching for jobs

out of discouragement over their reemployment prospects cease to be included. Conversely, the

number of labor force participants may increase during a recession if people see signs the

economy is improving and think it again worthwhile to look for work. If hiring does not keep

pace with discouraged workers reentering the labor force, for example, the unemployment rate

will rise in the face of otherwise good economic news. The unemployment rate thus is called a

lagging economic indicator: it typically improves only after other indicators have signaled an

impending recovery and actually may rise for some time after a recession’s end.

Firms usually are reluctant to add workers to their payrolls until convinced that the economy will

continue growing (i.e., gross domestic product, GDP, will keep increasing). Before employers are

Congressional Research Service

1

Unemployment and Employment Trends Before and After the End of Recessions

fairly certain that the increase in demand for their goods and services will continue, they are

likely to boost production by restoring the hours of those currently in their employ and by having

employees work overtime rather than by hiring new workers or recalling laid off workers. As a

result, job growth may not occur immediately upon the economy showing signs of a turnaround. 1

The source of jobs data that labor market analysts generally utilize is the Current Employment

Statistics program. In its establishment survey, BLS queries nonfarm employers each month about

the number of jobs (employees) on their payrolls. Employers are considered to be a more accurate

source for this information compared to the members of households who respond to the Current

Population Survey, from which the unemployment rate and most demographic information on

workers is derived. In addition, the Business Cycle Dating Committee appears to rely chiefly on

changes in both national output (GDP) and employment trends from the establishment survey to

determine the official beginning and end of recessions.

Trends in Unemployment and Jobs Before and After

the End of the 10 Prior Recessions

The U.S. economy experienced 10 recessions since World War II, excluding the latest, which ran

from December 2007 to June 2009. These recessions varied greatly in severity, as measured by

the extent of decline in GDP, and their duration.2 But, without exception, the unemployment rate

kept increasing until or more often after each recession had ended. (See Table 1.)

Table 1.The Unemployment Rate at a Recession’s End and at the Rate’s Peak

Peak Unemployment Rate

Dates of Business Cycle

Peak and Trough

Unemployment Rate

at Trough

Level

Date

Nov. 1948 - Oct. 1949

7.9%

7.9%

Oct. 1949

July 1953 - May 1954

5.9%

6.1%

Sept. 1954

Aug. 1957 - Apr. 1958

7.4%

7.5%

July 1958

Apr. 1960 - Feb. 1961

6.9%

7.1%

May 1961

Dec. 1969 - Nov. 1970

5.9%

6.1%

Aug. 1971

Nov. 1973 - Mar. 1975

8.6%

9.0%

May 1975

Jan. 1980 - July 1980

7.8%

7.8%

July 1980

July 1981 - Nov. 1982

10.8%

10.8%

Nov. 1982

July 1990 - Mar. 1991

6.8%

7.8%

June 1992

Mar. 2001 - Nov. 2001

5.5%

6.3%

July 2003

Source: Created by the Congressional Research Service from the Bureau of Labor Statistics’ unemployment

rate series and from the Business Cycle Dating Committee’s start and end points of recessions.

1

Wherever the phrase “job growth” appears in this report it refers to the net change in employment over time (i.e., the

difference between the number of jobs on employer payrolls in one time period compared to another).

2

For additional information see CRS Report R40198, The 2007-2009 Recession: Similarities to and Differences from

the Past, by (name redacted).

Congressional Research Service

2

Unemployment and Employment Trends Before and After the End of Recessions

The unemployment rate peaked at the bottom of the business cycle in three instances: at 7.9% in

October 1949, at 7.8% in July 1980, and at 10.8% in November 1982. In the remaining seven

recessions, the unemployment rate did not peak until after they had ended. Four times the

unemployment rate kept climbing for only a few months into the economic recovery: four months

after the July 1953-May 1954 recession ended, three months after the August 1957-April 1958

recession and the April 1960-February 1961 recession ended, and two months after the November

1973-March 1975 recession ended.

In contrast, the unemployment rate did not peak until well into the economic recovery in three

instances. The unemployment rate kept rising for nine months after the end of the December

1969-November 1970 recession, 15 months after the end of the July 1990-March 1991 recession,

and 18 months after the end of the March-November 2001 recession.

Like the unemployment rate, the employment data generally fit the picture of no steady job

growth until some months after a recession’s end. As shown in Figure 1, a sustained period of job

growth failed to ensue until after the end of all 10 recessions. In only one of those instances—the

very short January-July 1980 recession—did the employment level immediately begin trending

upward.

Figure 1. Number of Months into Recovery When Sustained Job Growth Began

22

Nov. 2001

12

Mar. 1991

4

End of Recession

Nov. 1982

July 1980

1

Mar. 1975

4

Nov. 1970

4

Feb. 1961

3

Apr. 1958

3

May 1954

Oct. 1949

4

5

Number of Months

Source: Created by the Congressional Research Service from the Bureau of Labor Statistics jobs data and

Business Cycle Dating Committee for end date of recessions.

In the other nine cases, the number of jobs on employer payrolls fluctuated for months after the

recession’s end. Sustained job growth occurred within three to five months of the start of seven

recoveries. In sharp contrast, steady job growth did not commence until March 1992—12 months

after the July 1990-March 1991 recession ended; and not until September 2003—22 months after

the March-November 2001 recession ended.

Congressional Research Service

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Unemployment and Employment Trends Before and After the End of Recessions

The very delayed improvement in the labor market following the 1990-1991 and 2001 recessions

led to the ensuing rebounds of the economy being referred to as jobless recoveries. With

employment at public and private sector employers similarly having failed to show consistent

improvement for well over a year since the recession’s end, many observers think the nation has

been experiencing another jobless recovery. While employment at firms in the private sector of

the economy started to steadily rise in January 2010, it appears that the fiscal problems of local

governments in particular have dampened the pace of overall job growth.3

Author Contact Information

(name redacted)

Specialist in Labor Economics

-redacted-@crs.loc.gov, 7-....

3

For additional information see CRS Report R41434, Job Growth During the Recovery, by (name redacted).

Congressional Research Service

4

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