Federal Reserve Bank of St. Louis. "Spring 2012," Inside the Vault (Spring 2012). https://fraser.stlouisfed.org/title/6107/item/586641, accessed on July 7, 2025.

Title: Spring 2012

Date: Spring 2012
Page 1
image-container-0 Volume 17 Issue 1 Spring 2012 A N E C O N O M I C E D U C AT I O N N E W S L E T T E R F R O M T H E F E D E R A L R E S E R V E B A N K O F S T. LO U I S Many Moving Parts: A Look Inside the U.S. Labor Market BY DAVID ANDOLFATTO AND MARCELA M. WILLIAMS Almost 8 million jobs were lost in the Great Recession of 2007-09 when the average unemployment rate peaked at over 9 percent. Roughly 1 mil- lion jobs have been regained since early 2010, but the unemployment rate remains persistently high. Some policymakers fear a prolonged “jobless recovery”—a period of rising average income, measured by gross domestic product (GDP)—with little or no employment growth. What’s Your Question? Unemployment Economic Snapshot Duration of Unemployment Bulletin Board AP Economics Conference Resources Econ Ed Live! www.stlouisfed.org/education_resources What, if anything, monetary and fiscal policymakers can or should do to stimulate the labor market is widely debated. Disagree- ments stem, in part, from the complicated nature of the problem: The labor market has many moving parts, policies may have unin- tended consequences, and ups and downs in the labor market can be difficult to interpret. Contrary to common belief, unem- ployment is not technically a measure of joblessness. It is, instead, a measure of job-search activity among the jobless. Mil- lions of unemployed people find jobs every month, even in a deep recession. Millions of workers either lose or leave their jobs every month, even in a robust expansion. This flow of workers into and out of employ- ment suggests that the labor market plays an important role in reallocating human resources to their most productive uses through good times and bad. Furthermore, unemployment rates, like most measures of labor market activity, often vary signifi- cantly across economic and demographic characteristics, such as income, age, sex, and education. In the labor market, the job-search activity of unemployed workers coincides with the recruiting efforts of firms with job openings. The combination of jobs seekers and open jobs suggests the presence of “frictions” in the process of matching workers to jobs. Vacancy rates (job openings) and unem- ployment rates tend to move in opposite directions over the business cycle. Normally, good times induce firms to create job open- ings, making it easier for unemployed workers to find jobs. However, this is not always the case. Since the end of the Great Recession, for example, job openings in the United States appear to have increased, yet unemployment is still high. Some economists interpret this as evidence of a “structural” change that will take years to work through. In everyday language, a “job” or “employ- ment” is commonly associated with an activity that generates a monetary reward. Standard labor force surveys classify a person as employed in a given month if the person reports having performed any continued on Page 2 T H E F E D E R A L R E S E R V E B A N K O F S T. LO U I S : C E N T R A L TO A M E R I C A’ S E C O N O M Y ®
image-container-1 2 WWW.STLOUISFED.ORG/EDUCATION_RESOURCES Many Moving Parts continued from Page 1 paid work in the previous four weeks. The term “paid” refers to direct monetary compensation by another party (an employer or, in the case of the self- employed, a customer). Understanding how employment is defined and measured is important for interpreting its level. An increase in employment is usually considered a good thing and, indeed, it frequently is. But employment may also increase when, for example, a student can- not afford to remain in school and returns to work or when a stay-at-home parent is forced to find a paying job. Clearly, it is not in the interest of society to have everyone employed. But if this is the case, then how is full employment to be defined and measured? The idea that the economy is at full employment when everyone who wants a job has a job is not very helpful. Almost anybody can get some sort of job in relatively short order—the problem is finding a high-paying job. Everybody wants such a job, even if currently engaged in other productive activities, such as going to school or running a household. Since World War II, employment, measured as a ratio of population size, has remained relatively stable over time, although the employment rate generally has been rising for women and falling for men. In the postwar era, the U.S. employment rate has averaged about 60 percent and has remained, for the most part, within 3 percentage points of this average from 1948 through 2010. Because the population base is large, a small change in the employment rate can translate into millions of jobs. For example, in the most recent recession, the employment rate declined by more than 3 percentage points—almost 8 million jobs. Figure 1 plots the employment-to-population ratio in the United States from 1948 through 2010. Reviewing this data is helpful because employment grows naturally with the population. The figure reveals that employment rates for men and women have evolved differently. First, although rates are lower for females relative to males, this gap has closed signifi- cantly over the past 60 years. The male employment rate declined persistently in the first half of the sample, while that for females generally rose. While these long- run adjustments appear to have stabilized over the past 20 years or so, it remains unclear whether some notion of “full employment” can be identified. If it can, then it would appear to differ across genders and fluctuate over time. Additionally, employment across different sectors varies widely even over relatively short periods. This sug- gests a degree of caution in creating a “one-size-fits-all” policy for the labor market. Figure 2 shows the employ- ment-to-population ratios for eight sectors. These ratios have been normalized to 100 in the first quarter of 2000; therefore, movement in a given sector represents the percentage change in that sector’s employment-to- population ratio since the beginning of 2000. If an economy were to grow along what economists call a “balanced growth path,” then all of the lines in Figure 2 would be expected to fluctuate around the normalized value of 100. Yet clear trends appear in at least two sectors: a long-run decline in the manufactur- ing sector and a steady rise in the education and health services sector—even through the Great Recession. In terms of cyclical unemployment (unemployment related to changes in the business cycle), there are no surprises. Take two extremes: Employment in the con- struction, mining, and logging sector is highly cyclical, whereas that in the government sector is not. 80 90 Males Total Females 70 60 50 40 1948 1952 Percent 1956 1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 30 20 10 0 U.S. Employment-to-Population Ratio (1948:Q1–2010:Q4) SOURCE: Bureau of Labor Statistics/Haver Analytics. Employment is divided by the civilian noninstitutional population 16 years of age and older. FIGURE 1 FIGURE 2 120 110 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 100 90 70 80 60 50 Evolution of Sectoral Employment (U.S. Employment-to-Population Ratio, 2000:Q1–2010:Q4) SOURCE: Bureau of Labor Statistics/Haver Analytics. Construction, Mining, Logging Manufacturing Information, Financial, Other Services Professional, Business Services Education, Health Services Trade, Transportation, Utilities Leisure, Hospitality Services Government Index, 2000:Q1=100
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