Update on the comparison of the unemployment rates in 1982 and today

A few days ago I posted some skeptical notes about the comparison of unemployment rates over time within education categories. My comments were really purely statistical; I know next to nothing about unemployment numbers.

One of the advantages of running this blog is I sometimes get emails from actual experts. In this case, economist John Schmitt wrote in:

Your post looks at just how comparable the unemployment rates are in 2009 and the early 1980s. The specific issue concerns whether we should factor in the big changes in educational attainment between the early 1980s and the present –our working population is a lot better educated today than it was in the early 1980s.

According to the piece that motivated your blog post, the unemployment rate for workers at each level of education is higher now than it was in the early 1980s. So, in a mechanical sense, the unemployment rate is lower in 2009 than it was in the early 1980s only because a larger portion of the population in 2009 has shifted to the “low-unemployment” higher education groups.

You take the view that the aggregate unemployment rate is what matters, not the disaggregated unemployment rates by education. Dean Baker and I, however, did a recent analysis in the spirit of the education-based analysis you cite.

We focused on how much older the workforce is today (rather than how much better educated it is), and conclude that if you want to do a sensible comparison, you’ll want to factor in the age change.

The main argument from our [Schmitt and Baker’s] paper:

The official definition of unemployment has not changed between 1982 and the present. But, if we are interested in using the unemployment rate to assess the degree of underutilization of resources in the economy, the official measure does not tell the full story. Relative to 1982, the official unemployment rate today understates the true slack in the economy for two reasons.

First, the population is much older today than in 1982. The median age of the labor force was 42 years in 2008, compared to just 35 in 1982. Younger workers are more likely to switch jobs frequently and typically have fewer dependents and financial commitments so they can more easily endure periods of unemployment. As a result, all else equal, younger populations have a higher unemployment rate than older populations. We therefore expect a lower unemployment rate with today’s older population than we had with the much younger population in 1982, even if the economy were in an identical recession in both years.

“The second reason that the published unemployment rate today understates labor-market slack relative to 1982 is that the CPS misses a larger portion of the population today than in the past. The Census Bureau estimates, for example, that in 1986 the CPS covered 93.0 percent of the population, but by 2005 the coverage rate had dropped to 89.7 percent.3 For most purposes, the Census Bureau has techniques to compensate for the decline in coverage, but, for technical reasons, these fixes do not correct for the tendency of those excluded to be non-employed. The failure to take the lower employment rates of the uncovered population into account can lead to an important understatement of the unemployment rate today relative to 1982.

Obviously, the second issue is minor and not particularly relevant here, but there is an economic case for not taking the aggregate unemployment rates at face value. The key question is: how well does the economy do in converting inputs (workers of a particular age, say, or arguably of a particular education level) into outputs (jobs). If one economy (1982) has younger (or less educated) workers than the other (2009), we’d want to factor that in before we conclude that the 2009 economy is definitely doing better.

Interesting. I hadn’t thought of comparing by age; that makes a lot of sense. Certainly the aggregate numbers can never be the end of the story, once an appropriate analysis is done. As Kaiser commented:

The lesson of simpson’s paradox is to always look at the data at several levels of aggregation. If the analyses lead to different conclusions, that will lead us to explore more, and understand the data better.

6 thoughts on “Update on the comparison of the unemployment rates in 1982 and today

  1. Interesting indeed, but age differences only look at one side of the coin. The economies were different in 1982 than they were in 2009. Older folks who lose their jobs have a harder time finding work in today's technologically driven economy, whereas younger folks change jobs like they change socks. Age matters, but I suspect it matters more in relation to the type of economy we have.

  2. I agree that age is only one of many differences between 1982 and 2009. But, the basic relationship between age and unemployment is the same today as back in 1982. Despite the technological changes over the period, older workers are still a lot less likely to be unemployed today than younger workers are. For the full year 2008, for example, the unemployment rate for 16-24 year old was 12.9 percent; for 25-34 year olds, 5.8 percent; 35-44, 4.6 percent; 45-54, 3.7; and 65 and over, 4.3 percent.

  3. Even if all of these points are true, it does not necessarily stack up to the current recession being "worse." Labor force participation (especially for females) is much higher now, and one thing that has surfaced in the course of this recession is that more and more women are the "primary" (or only) wage-earner.

  4. Women do have higher employment rates now than in the early 1980s, and women are now the primary breadwinners in a larger share of households than back then. But, these patterns reflect long-term trends, and recessions are all about deviations from trend patterns.

    The question here is: is the current deviation smaller or bigger than what happened in the early 1980s? I think it is hard to argue that things aren't worse today than in the early 1980s. Total employment since December 2007 is down more than 5 percent. In the 1981-82 recession, total employment fell 3 percent –a lot– but after 23 months (where we are now in our current cycle) total employment in that recession had already returned to pre-recession levels.
    (The New York Times Economix blog had a nice graph last week:
    http://economix.blogs.nytimes.com/2009/12/04/comp… )

    Specifically for women, in 1981-82 employment rates barely changed (varying a few tenths of a percentage points in the 48 percent range); since December 2007, women's employment rates are down over 2.5 percentage points (around much higher employment rates –56-58 percent– as you note).

  5. I don't know how unemployment is measured in the States but I suspect a big difference between the 80's and now is in women's employment. In the 80's a proportion of women probably moved in and out of employment but were never countered as unemployed because their main occupation was "housewife" – their working lives outside the home was very much secondary to their role in the family.

    Now that women are better educated and their is less discrimination, a women's career may not be considered such a low priority by her and her family. Unwanted breaks from employment would be considered as unemployment just as it would be for men.

    The interesting thing about coming out of recession is that their may not be enough workers about. Women who have become unemployed may choose to have their children now while they have time on their hands which they might not otherwise have done for a few years. That may put them out of the job market for a while. Birthrate data may show this effect.

  6. Every adjustment in the method of tracking unemployment made in the US in recent decades has resulted in the lowering of the unemployment rate.

    I've seen arguments that if the same methodology that was used in the 1930s was used today, the unemployment rate would be something like 17%. I'm not sure if this is true, but it would certainly be higher than the 10% figure you usually see.

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