The US economy fell into a deep recession in December 2007. The recession ended
ID: 1137821 • Letter: T
Question
The US economy fell into a deep recession in December 2007. The recession ended officially in June 2009. The unemployment rate fell from a peak of 10.0% in October of 2009 to 3.9% in August of 2018.
Some of this decline in the unemployment rate may have been the result of what economists call the “discouraged worker effect”. Individuals who look for work for many months without success sometimes get frustrated and stop looking. This means they have left the labor force, which in turn makes the measured unemployment rate fall.
Determine what the unemployment rate would have been in August 2018 if participation in the labor force had remained unchanged.
To answer the following question, you will need to access the following data series in FRED:
Civilian Labor Force Participation Rate (CIVPART) – this is the percentage of the adult civilian population that is in the labor force (working or actively seeking work)
Civilian Labor Force (CLF16OV) – this is the total number of civilian adults who are in the labor force – working or actively seeking work
Civilian Employment (CE16OV) – this is the total number of civilian adults who are employed
Civilian Unemployment Rate (UNRATE) – this is the percentage of those individuals in the civilian labor force who are not working but who are actively seeking work. NOTE: Those who are not working but who are not actively seeking work are classified as “not in the labor force.”
In addition, another variable we will calculate is:
Civilian Population (CIVPOP) – the total number of civilian adults age 16 and over.
These variables are related as follows:
[A] CLF16OV = CIVPOP*(CIVPART/100)
[B] UNRATE = 100*(CLF16OV – CE16OV)/CLF16OV
From FRED, What are the December 2007 and August 2018 values of CIVPART, CLF16OV, CE16OV, and UNRATE?
Use formula [A] above and the actual August 2018 and December 2007 values of CLF16OV and CIVPART to determine the CIVPOP in August 2018 and in December 2007. NOTE: You plug the CLF16OV number on the left side and the CIVPART number on the right side, then solve for CIVPOP.
Suppose the Civilian Labor Force Participation Rate (CIVPART) was the same in August 2018 as it was in December 2007. Find the implied value of the Civilian Labor Force (CLF16OV) – that is, what would have been the number of people in the Civilian Labor Force in August 2018 if the Labor Force Participation rate in that month had been the same as it was in December 2007.
Given your answer to question (3), and given the value of total employment (CE16OV) in August 2018, find what the value of the August 2018 unemployment rate (UNRATE) would have been if the labor force participation rate was the same in August 2018 as it was in December 2007. NOTE: To answer this question, make use of the fact that # in labor force = # employed + # unemployed. Also note that you use the actual value of CE16OV in August 2018 with the value of CLF16OV that you calculated in your answer to question #3 above.
Explanation / Answer
If unemployment is the one fundamental indicator of the job market's health, the patient is for sure ailing. Consistent with essentially the most contemporary data from the Bureau of monetary analysis, total economic pastime shriveled by using 5.1 percent for the period of the recession; for this reason, unemployment jumped from 5 percentage in December 2007 to 10.1 percent through October 2009. When you consider that then, unemployment has stabilized at round 9 percent, still an uncomfortably high fee.
Regularly, the unemployment price raises at any time when the overall economy undergoes a recession. The expense peaks about 15 months after the recession starts, or 4 months after it ends, then drops progressively because the financial system recovers (see the determine "Unemployment fee during Recessions"). Our current experience has been wonderful on two counts. First, unemployment has risen far more than in other contemporary recessions; 2d, the unemployment cost has remained high for an particularly very long time.
So the important labor market-related questions facing generation Recession are these: Is high unemployment right here to remain? If this is the case, what does it imply for the millions of americans who are out of work to not mention the leisure of yankee society?
Why Unemployment is still excessive
Our work on the Federal Reserve bank of Cleveland indicates that most of the raises in the unemployment price outcome from cyclical causes; that is, explanations that as a rule would have most effective a temporary outcome and will have to regularly fade as the financial system recovers. That is the good news.
The unhealthy information is that we even have found at the least two causes why the unemployment cost could stay excessive for some time: the weak point of the restoration in real monetary output and the slow price at which workers find new jobs. To comprehend these reasons, we have got to take a better look at how staff transfer into and out of unemployment.
The unemployment cost studies the quantity of jobless employees as a fraction of the labor drive. However in any given month, some employed employees lose their jobs and a few unemployed employees find new ones; on this way, they drift into and out of the unemployment pool. Thus, the total quantity provides scant expertise in regards to the exact extent of churning within the labor market. Employee flows generally determine the unemployment expense, however the expense says nothing about them.
Usually, the begin of a recession is marked by using an develop in layoffs and a diminish in hiring. Because the economic climate starts to recuperate, layoffs in general stabilize simply before the unemployment price peaks. Most of the subsequent upward push in unemployment results no longer from layoffs but from a low hiring price.
In some methods, the recent recession was once no exception; toward its end, layoffs stabilized. Nonetheless, even two years into the recovery, unemployed americans still have situation discovering work. To higher fully grasp when we would assume this situation to reinforce, my colleague Saeed Zaman and i developed a brand new dimension of the lengthy-run unemployment fee that comprises employee flows into the analysis. This helps us distinguish between two possibly exclusive causes for a high unemployment expense: lengthy intervals of unemployment for laid-off staff and the very excessive quantity of layoffs overall. Underlying trends in these glide premiums determine where the unemployment fee will settle in the end.
When measured on this new approach, the unemployment rate trend as a rule known as the "normal price" has been fairly steady in the last decade, even after probably the most up to date recession. This traditional rate has hovered round 6 percent for a couple of many years, and there it stays (see the figure "Job Flows and Unemployment price").
How could the trend have modified so little when unemployment used to be so excessive? There are two causes at the back of this effect: First, the latest recession was once a horrible recession, in terms of both period and depth. 2d, the two go with the flow-cost developments have each been declining; the job-finding fee started to say no over the past decade, and separations had been declining on the grounds that the Eighties. Whatever have an effect on these traits would have had on the normal rate, as a consequence, have been offset. What emerges is a portrait of a job market the place workers change rentÂment popularity much less in most cases than earlier than.
This isn't a welcome progress. In idea, the extra labor market churning there's inside an economic climate, the rapid unemployment returns to its traditional fee. Intuitively, we'd expect that as extra unemployed workers finding jobs, unemployment would decline extra speedily towards that rate.
Our mannequin generates an unambiguous conclusion: The low fee at which unemployed workers are finding jobs predicts a slower decline within the unemployment rate. In other words, it is going to take a very long time, longer than it by and large did, for unemployment to maneuver back to round 6 percentage.
Whether or not the labor market drawback becomes higher or worse depends mainly on the development rate in the aggreÂgate economy. Our study supplies a stark illustration of this probably primary component. For example, if real GDP development had been 4.9 percentage yearly for the period of the primary two years of the healing (as used to be the case after the 1982 recession), the unemployment expense would have come right down to round 7 percent via now. Rather, growth was most effective 2.5 percentage annually, leaving unemployment round 9 percentage.
Long-run unemployment trends are primary for figuring out an economy's productive competencies. The longer we exceed the normal expense, the longer we waste our assets in this case, human capital. For instance, almost half of of the unemployed stay jobless for 27 weeks or longer; their odds of discovering a job grow to be further reduced as their talents decline and so they lose professional contacts.
Potentially, a big pool of long-term unemployed would start losing their competencies to the point of being a foul suit for new jobs when the economy subsequently starts to get well robustly. That is one designated threat the great Recession poses for the U.S. Labor markets.
Unemployed think Recession's Sting
Understandably, out-of-work americans consider worse about their financial stipulations than those with jobs.
Utilizing information from the Ohio State college's client Finance month-to-month's survey and breaking it down by means of employed versus unemployed households, we reach predictable outcome. In comparison with families with as a minimum some employment, unemployed families are sixteen percentage facets extra more likely to say they're worse off than a yr prior. Unemployed households are lower than half as possible as employed households to claim they're "at an advantage."
it is quite often premature to attract huge conclusions from these outcome. One factor to watch, although, is whether or not we're witnessing a "two-speed" recuperation, in which individuals with jobs aren't feeling the after-results of the recession at all, at the same time the unemployed and in specified the lengthy-term unemployed are getting hammered.
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