With unemployment rates higher than they've
been in decades, many are trying to determine how quickly unemployment
numbers will come down once the recession is over. While the overall
unemployment rate is the most commonly cited statistic, researchers
focus on two components of that rate - the inflow rate, or the
rate that workers are moving into unemployment, and the outflow
rate, or the rate that workers are moving out of unemployment.
The movement of these two rates has varied over time.
During recessions in the 1970s and 1980s,
increases in the rate that workers were moving into unemployment
and decreases in the rate that workers were moving out of unemployment were nearly equivalent. In other words, during these recessions, employees were getting fired and were unable to find new jobs
because employers were not hiring. This caused large spikes in
the overall unemployment rate. However, once the economy turned
around, the inflow and outflow rates returned to normal levels,
bringing the overall unemployment rate down very quickly.
But during the 1991 and 2001 recessions,
unemployment rates spiked up primarily due to lack of hiring,
not due to massive layoffs. As the economy started to recover,
employers were slow to hire, creating jobless recoveries.
During the current recession, the labor
markets are again more typical of recessions in the 1970s and
1980s, with high levels of firing and low levels of hiring. That
makes it much more difficult for unemployed workers to find jobs,
increasing the length of time people remain unemployed.
To try to determine how much hiring employers
will do once the economy starts to recover, a couple of other
indicators can be reviewed. During recessions, the number of temporary
layoffs and the number of involuntary part-time workers typically
increases. However, during this recession, there are more permanent,
rather than temporary, layoffs, meaning that employers do not
intend to rehire these employees in the near future. For instance,
between July 1981 and November 1982, the percentage of unemployed
workers on temporary layoffs increased from 16.1% to 20.7%. From
December 2007 to April 2009, the percentage declined from 12.8%
to 11.9% (Source: FRBSF Economic Letter, June 5, 2009).
The number of employees who are working
part-time involuntarily is at historical highs, increasing from
3.0% in December 2007 to 5.8% in April 2009 (Source: FRBSF
Economic Letter, June 5, 2009). This increase has occurred
in a broad range of industries in a wide range of occupations.
Many see this as a sign that once the economy recovers, employers
will just move employees from part-time to full-time status, without
the need to hire more employees.
While no one knows for sure what will happen
in the future, all of these factors imply that even when the economy
starts to recover, unemployment rates may stay at high levels
for some time to come.
