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Recessional Effects on the Labor Force and Unemployment Rate

- Kassi Hall and Cat Spencer

US Civilian Unemployment Rate 1948-Present
US Civilian Labor Force 1948-Present

The two graphs above show the fluctuations and growth of the Civilian Unemployment Rate and the Civilian Labor Force in the United States since 1948. By looking at the graphs, it is clear that since the Baby Boom following World War Two, the labor force has been growing at an exponential rate over time with no sharp fluctuations. This is to be expected as large masses of people were entering into the labor force with each year while fewer were leaving, except for in times of recession. The periods of recession during the last seventy years are shown by the areas highlighted in grey. In the graph of the Civilian Unemployment Rate, during recessions, unemployment rates spiked. The rate of growth in the labor force has leveled out or even decreased slightly in these recessions as well. This could be caused by the population feeling discouraged by a lack of job opportunity, the fact that people may have chosen not to enter or to leave the labor force, or the decrease in the percentage of the population actively looking for work.

In recent years, it appears that the labor force has begun to plateau and even slowly decrease as the Baby Boomers begin to retire. It is clear in the graph that until about 2009, our labor force from was still growing at the exponential rate, even with the retirement of the baby boomers as they reach the age of 65 or 70 years old. This is because of a continuously high rate of immigration. The United States had been in a relatively special situation compared to other developed nations as our population distribution continued to grow even with an aging population because people from other countries continued to immigrate to the US. However, Immigration rates are especially sensitive to the state of the economy, so immigration slowed because of the Great Recession in 2008. Now, we are starting to see the effects of population distribution on the economy.

Total Factor Productivity is all that matters in the long run, and most models of Total Factor Productivity can’t capture short run fluctuations. This means that we won’t know if the plateau in the growth of the US labor force will have any long term effects on productivity yet.

24 thoughts on “Recessional Effects on the Labor Force and Unemployment Rate

  1. Katie Paton

    By looking at the US Civilian Unemployment Rate Graph, I noticed that the peaks in unemployment seem to occur just after the grey shaded areas that represent recessions. Prior to this class I assumed that unemployment was a cause of recessions. I wonder if a graph of job leavers or job losers would show higher peaks of unemployment during these times?

    Reply
    1. hallk20

      I wonder if they qualified a recession in those graphs as when unemployment was spiking, which would explain why they seem to mark the end of the recession as when unemployment begins to fall. This could simply be how they are defining a recession, or it could be the natural effects of the end of the recession on the unemployment rate.

      Reply
      1. the prof

        Yes, while the official dating method focuses on a variety of indicators, labor market metrics matter most. So the start of a recession is dated as occurring near the time when unemployment starts rising, and as ending when unemployment begins falling, that is, when the economy is growing again.

        Reply
  2. bearupk20

    To me, it is fascinating to see how a single generation can have such an impact on an economy. It will be interesting to see how the retirement of the Baby Boomers will affect not only the labor force, but perhaps other factors as well. I think that the economy will continue to be sensitive to changes based upon which generation is the main contributors to the labor force at a current time, as some generations are more likely to enter the labor force earlier, retire later, etc.

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    1. hallk20

      The shift from the retirement of the baby boomers will definitely be interesting to watch, especially as it interacts with the younger generations having fewer and fewer kids to replace the boomers in the workforce. For the first time in our country's history, we could have more dependents in the population than we will in the work force, which is especially detrimental to things like social security. These two population distribution changes happening at once will certainly have very fascinating outcomes.

      Reply
  3. myerse20

    I am surprised to see that there are not more correlations between the labor force and the unemployment rate, as I would have expected that an increase in the labor force would lead to a decrease in unemployment rates. Though it might go without saying, I also expected that a decrease in the labor force would lead to an increase in unemployment rates. Your explanation of the baby boom as well as immigration does explain why these trends' correlating like I described is not shown in the graphs.

    Reply
    1. spencerc20

      I think another factor in that may be the fact that when the labor force increases there are more people looking for a limited number of jobs which may increase the unemployment rate instead of decreasing it.

      Reply
  4. Lauren Fredericks

    I was surprised when I looked at your graphs and saw that the US labor force leveled off or decreased during times of recession--I figured, if anything, it should go up, as perhaps stay-at-home parents would enter the workforce (or try) to supplement their income. But your explanation makes a lot of sense--because unemployment was rising and jobs were increasingly difficult to find, there would likely be an increase in discouraged workers, which would not appear in the labor force evaluation. That really highlights the weakness of the US labor force statistic.

    Reply
  5. the prof

    Note that we know roughly what the size of the labor force will be in 2040, as almost all those future workers have already been born. Yes, there's immigration, and there are also long-run shifts in participation (over the last 30 years, many more younger people seeking 4-year college degrees).

    Reply
    1. spencerc20

      It seems that immigration has begun to plateau and even decrease to an extent because people are not as sure that the US is worth coming to in order to find a job. Potential immigrants could possibly be considered discouraged workers as well because they are no longer deciding to move to the US and become a part of our labor force.

      Reply
  6. clintong20

    I find it interesting how professor noted the increase in long run shifts in comparison with you graphs. The US labor force seemingly evened itself at given times of economic downturn. You can definitely note that the labor force is heavily impact by "U", in these graphs.

    Reply
    1. hallk20

      Since LF is the sum of both U and E, it appears that the evening out could come from people who are not counted in the U, such as the discouraged who are not actively looking for a job, yet are still technically unemployed. They are then not counted in the Unemployment rate, and not counted as participating in the labor force. It would be interesting to see the rates of people who aren't counted in U or E during times of recession and how those rates increase as a result of these overlooked people from the rates of U.

      Reply
  7. Chris Surran

    It is very interesting that the US labor force nearly doubled in size in about 20 years. As these baby boomers begin to retire it will certainly strain our economy and current political structures. It will be interesting to watch how the current administration handles this phenomena.

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    1. laytonr20

      The problem is that many of those people who are leaving the labor force are going into the government after that, so I agree, it will be interesting to watch what the government, either under the current administration or a future one, will do, since they will have to chose between doing what is best for their age bracket and doing what is best for the future of the economy.

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    2. spencerc20

      Politically this will be especially interesting because of the effect of an increased number of retirees seeking Social Security with a smaller labor force contributing to it. We will have to wait and see how the current administration and even future administrations choose to handle this, if they do at all.

      Reply
  8. moraifa19

    It is interesting to see how even when the economy begins to grow out of a recession, the number of unemployed people are still growing despite the upturn. This is because the growth is not occurring fast enough to overturn the effects of unemployment. Additionally, looking at the increase in the labor force, it shows no dips the way the unemployment rate does, showing the discouraged and underemployed workers the unemployment rate leaves out.

    Reply
    1. spencerc20

      Another reason could be that as we are coming out of a recession, companies are finishing their last rounds of downsizing. This could mean that they have laid off more employees, causing the unemployment rate to increase right at the end of a period of recession.

      Reply
  9. Evans Alison

    This is an exciting topic. The question is how will our generation continue to be able to increase productivity. We have seen technology grow exponentially, but will this growth continue to increase long run GDP. With a smaller labor force, the US will need to increase other capital to increase productivity.

    Reply
    1. spencerc20

      I think we will continue to see an increase in technology with the smaller labor force. The one concern with that for many in the labor force is that technology will replace them, increasing the unemployment rate. However, technology cannot replace humans completely so we may then see a shift in the demand for different types of labor with technology taking over certain fields and the population moving into more specialized fields.

      Reply
  10. bullr20

    I wonder how a more open immigration policy would affect US economic growth... It would curb the labour force plateau. An increase in labour to match an increase in TFP seems likely to produce more GDP than the effect of TFP alone.

    Reply
    1. spencerc20

      It doesn't seem that this is a policy issue. As the US economy faced a downturn during the Great Recession, we saw a slow in immigration because there was a lack of opportunity for jobs. It may be that we're not looking for an increase in the labor force as much as we are looking for a decrease in the rate of unemployment.

      Reply
  11. clintong20

    I want to follow up with a comment here concerning the level of labor productivity. Will technology and other physical capital (investment) continue to grow or is It subject to halt? It would be interesting to note the effect it would have in an increase and/or decrease in terms of long run GDP.

    Reply
    1. spencerc20

      Neither of these graphs take technology or physical capital into account, but it doesn't seem unlikely that they will stop growing as technology especially has been growing rapidly in recent history. I agree that this would be something interesting to note in terms of long run GDP, but also in relation to the effects of technology on the labor force.

      Reply

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