Unemployment in the Great Recession Compared to the 1980s

Unemployment in the Great Recession Compared to the 1980s Richard A. Hobbie Executive Director National Association of State Workforce Agencies Assisted by Gina Turrini Please direct questions or comments to gturrini@naswa.org January 5, 2011

By some measures, the 2007-2009 recession was less severe than the recession that began in 1981. The number of regular state unemployment claims (as a percentage of the workforce) and the unemployment rate, for example, were higher during the 1981-1982 recession than during the 2007-2009 recession. This was due in part to the lingering effects of the brief recession in the first half of 1980. However, the recovery after the 1981-1982 recession was faster and stronger than the current recovery has been. This is particularly striking when looking at job losses; jobs were gained rapidly after the end of the 1981-1982 recession, but this has not been the case following the recent recession. Although regular state initial unemployment claims as a percentage of the labor force was higher during all of the 1981-1982 recession than during the recent recession, the number of continuing regular state claims 1 as a percentage of the workforce is now higher for the recent recession. The number of discouraged workers 2 as a percentage of the workforce was significantly higher for all of the 1981-1982 recession than for the current recession, but it also decreased every quarter after that recession ended. In contrast, the number of discouraged workers as a percentage of the workforce has continued to climb since the start of the recent recession, even after the recovery officially began in June 2009. When these discouraged workers eventually reenter the workforce, it may cause unemployment to remain high. Record levels of long-term unemployment and rising worker discouragement are the major lingering problems left by the Great Recession, and there is no sign these problems will abate soon. 1 Continuing unemployment insurance claims are those that are continuing from a previous week, and therefore do not include new or initial unemployment claims. 2 Discouraged workers are those who are no longer actively looking for work because they believe there is no job available to them.

During the early 1980s, the United States experienced two short recessions according to the National Bureau of Economic Research. The first lasted from January 1980 to July 1980. The second lasted from July 1981 to November 1982. For the purposes of this comparison, we are looking at the second recession, which was more similar to the Great Recession in severity and length. The recent recession lasted from December 2007 to July 2009. INITIAL UNEMPLOYMENT CLAIMS During the 1981-1982 recession, the weekly average number of initial unemployment claims was higher than during most of the recent recession, peaking at roughly 661,000 claims versus 643,000. However, there was both a steeper increase and a slower decline in the number of initial unemployment claims during 2007-2009 (see Figure 1). Adjusting for growth in the size of the labor force between the two periods (using covered employment as a proxy), the number of initial unemployment claims has been much lower during the recent recession than during comparable months of the 1981-1982 recession. However, although the percentage of the labor force filing initial claims reached a higher peak during the 1981-1982 recession, it came down quite quickly. During the current recession, in contrast, this measure fell slowly and has remained fairly stagnant for the past few 11 months (see Figure 2). Currently, initial unemployment claims as a percentage of the labor force is still lower than it was for the comparable month during the 1981-1982 recession, but the difference is shrinking (see Figure 2).

FIGURE 1: Initial Unemployment Claims 4-Week Average (Seasonally Adjusted) 700,000 650,000 End of the 2007-2009 Recession 1981-1982 Recession 600,000 2007-2009 Recession 550,000 500,000 End of the 1981-1982 Recession 450,000 400,000 350,000 300,000 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 Months Since the Start of the Recession

Percentage of Covered Employment FIGURE 2: 4-Week Average Initial Unemployment Claims as a Percentage of Covered Employment (Seasonally Adjusted) 0.80 0.70 End of the 1981-1982 Recession 0.60 End of the 2007-2009 Recession 0.50 0.40 1981-1982 Recession 0.30 2007-2009 Recession 0.20 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 Months Since the Start of the Recession

CONTINUING UNEMPLOYMENT CLAIMS The average weekly number of continuing unemployment claims began slightly higher in the 1981-1982 recession than in the 2007-2009 recession (2,883,000 versus 2,735,750), but quickly became much greater during the 2007-2009 recession, due in part to the much larger labor force (see Figure 3). As a percentage of the labor force, the average number of continuing claims was much higher during the 1981-1982 recession for the first several months. It was not until summer of 2009 (the end of the recent recession) that the average continuing claims as a percentage of the labor force was higher during the recent recession than for the comparable month of the 1981-1982 recession (see Figure 4). Following the end of the 1981-1982 recession, the number of continuing unemployment claims continued to drop, while for the past several months, weekly continuing claims as a percentage of the workforce has remained relatively constant (see Figure 4).

FIGURE 3: Continuing Unemployment Claims 4-Week Average (Seasonally Adjusted) 7000000 6500000 6000000 End of the 2007-2009 Recession 5500000 5000000 4500000 End of the 1981-1982 Recession 4000000 3500000 3000000 1981-1982 Recession 2007-2009 Recession 2500000 2000000 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 Months Since the Start of the Recession

Percentage of Covered Employment FIGURE 4: 4-Week Average Continuing Claims as a Percentage of Covered Employment (Seasonally Adjusted) 6.00 5.50 End of the 1981-1982 Recession 5.00 4.50 End of the 2007-2009 Recession 4.00 3.50 3.00 2.50 1981-1982 Recession 2007-2009 Recession 2.00 1.50 1.00 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 Months Since the Start of the Recession

UNEMPLOYMENT RATE The unemployment rate at the beginning of the 1981-1982 recession was more than 2 percentage points higher than at the beginning of the current recession, and remained higher for almost two years (see Figure 5). The unemployment rate peaked at almost 11 percent in 1981-1982, the same month that the recession officially ended. The unemployment rate peaked several months after the official end of the recent recession in June 2009 at 10.1 percent (see Figure 5). During the 1981-1982 recession, the unemployment rate came down much more rapidly than it has during the recent recession. As of fall 2009, the unemployment rate for the current recession has remained higher than the unemployment rate for the comparable months of the 1981-1982 recession. Worse, while at this point in the 1981-1982 recession unemployment was falling rapidly, unemployment has remained relatively stagnant over the past year (see Figure 5).

Unemployment Rate FIGURE 5: Unemployment Rate (Seasonally Adjusted) 11.0% End of the 1981-1982 Recession 10.0% 9.0% 8.0% End of the 2007-2009 Recession 7.0% 1981-1982 Recession 2007-2009 Recession 6.0% 5.0% 4.0% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 Months Since the Start of the Recession

CHANGES IN NON-FARM EMPLOYMENT Although initially jobs were lost at a faster rate during the 1981-1982 recession (controlling for the size of the labor force), this changed around one year into the recessions. Since the 12 th month following the beginning of the recessions, job losses as a percentage of the labor force have been much higher for the current recession than for the 1981-1982 recession (see Figure 6). Job losses peaked at roughly the end of the 1981-1982 recession. During that month, jobs lost as a percentage of the labor force was significantly higher for the current recession than for the 1981-1982 recession (4.10 percent versus 2.44 percent) (see Figure 6). After the 1981-1982 recession ended, employment quickly increased. In contrast, after the end of the 2007-2009 recession, jobs continued to be lost, and employment has not significantly improved (see Figure 6).

Percentage of the Labor Force 4.00 FIGURE 6: Cumulative Changes in Non-Farm Employment as a Percentage of the Labor Force (Seasonally Adjusted) 3.00 2.00 1.00 0.00 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37-1.00-2.00-3.00 End of the 1981-1982 Recession 1981-1982 Recession 2007-2009 Recession -4.00 End of the 2007-2009 Recession -5.00-6.00 Months Since the Start of the Recession

LONG-TERM UNEMPLOYMENT One of the starkest differences between the 1981-1982 recession and the 2007-2009 recession is the percentage of the unemployed who have been unemployed for 27 weeks or longer. Long-term unemployment has been higher for the 2007-2009 recession from the start, and long-term unemployment as a percentage of total unemployment has grown much larger for the 2007-2009 recession than for the 1981-1982 recession (see Figure 7). After the end of the 1981-1982 recession, long-term unemployment continued to increase slowly for another seven months and then began to decrease. In contrast, long-term unemployment increased after the official end of the current recession (July 2009) for another 10 months, and at a faster rate than during the 1981-1982 recession (see Figure 7). Although the percent of the unemployed who have been unemployed for 27 weeks or longer has decreased for the past several months, it still remains markedly higher than the comparable period after the 1981-1982 recession (see Figure 7).

Percentage of the Unemployed FIGURE 7: Percent of the Unemployed Who Have Been Unemployed for 27 Weeks or Longer (Seasonally Adjusted) 50.0% 45.0% 44.3% 40.0% 35.0% 30.0% End of the 2007-2009 Recession 1981-1982 Recession 2007-2009 Recession 25.0% 20.0% 15.0% 17.3% End of the 1981-1982 Recession 10.0% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 Months Since the Start of the Recession

DISCOURAGED WORKERS The number of discouraged workers as a percentage of the total labor force was consistently higher during the 1981-1982 recession and in the months after than during the 2007-2009 recession (see Figure 8). Once the 1981-1982 recession ended, discouraged workers as a percentage of the labor force decreased every quarter. Even after the end of the 2007-2009 recession, however, discouraged workers as a percentage of the labor force has continued to climb, but the percentage is still much lower than during the 1981-1982 recession (see Figure 8).

Percentage of the Labor Force FIGURE 8: Discouraged Workers as a Percentage of the Labor Force (Seasonally Adjusted) 1.80 1.60 End of the 1981-1982 Recession 1.40 1.20 1.00 1981-1982 Recession 2007-2009 Recession 0.80 0.60 0.40 0.20 End of the 2007-2009 Recession 0.00 1 2 3 4 5 6 7 8 9 10 11 12 Quarters Since the Start of the Recession

SOURCES FOR DATA Figures 1 4: Initial and continuing claims data, as well as covered employment, can be found at http://www.ows.doleta.gov/unemploy/claims.asp. For these graphs, we calculated the four-week moving average using the most updated weekly claims data available. Figure 5: Monthly unemployment rates can be found http://data.bls.gov/pdq/servlet/surveyoutputservlet?series_id=lns14000000. Figure 6: Information on monthly changes in private nonfarm employment can be found at http://data.bls.gov/pdq/servlet/surveyoutputservlet?data_tool=latest_numbers&series_id=ces0000000001&output_view=net_1mth. Information on the size of the labor force (which was used for Figure 6 and Figure 8) can be found http://www.bls.gov/webapps/legacy/cpsatab1.htm. Figure 7: Information on the long-term unemployed can be found http://www.bls.gov/webapps/legacy/cpsatab12.htm. Figure 8: Information on discouraged workers is only available quarterly for 1980 to 1981. This information can be found in Bureau of Labor Statistics new releases (http://www.bls.gov/opub/mlr/1985/02/art1full.pdf, http://www.bls.gov/opub/mlr/1984/02/art1full.pdf, and http://www.bls.gov/opub/mlr/1983/02/art1full.pdf). For the Great Recession, we used monthly discouraged worker data from http://www.bls.gov/webapps/legacy/cpsatab16.htm and then found the quarterly average to compare with the 1981-1982 recession.