Some Evidence Suggesting that Structural Changes in the Economy May Be Important for Recent Changes in Unemployment

As I began to look more deeply at the data on the duration of unemployment, and on the sources (job leavers, new labor force entrants, labor force re-entrants, and job losers) of unemployment, I found additional evidence that more of what has been happening may be a result of structural changes than  had previously been willing to acknowledge.  This shows up in changes in the details of the duration of unemployment.

The data reported by the BLS allows us to identify four ranges of the (current) duration of unemployment, 0-5 weeks, 6-14 weeks, 15-26 weeks and 27 weeks or longer.  (These are the current duration of existing spells of unemployment, not the final duration of a spell of unemployment.)  In the following chart, I report an “unemployment rate”-like measure for these four duration categories.  The data reported are the number of people reporting that duration of unemployment divided by the number of people in the labor force; available data are monthly from January 1948 through February 2013 and are seasonally adjusted.

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What seems fairly noticeable is that, beginning about 1982, the “unemployment rate” composed of those with current unemployment spells of less than 5 weeks has trended downward, and, by 2007, was lower (at close to 1.5%) than at almost any time since World War II, lower even than in the low unemployment years of the late 1960s (when, with overall unemployment rates below 4%, this measure of unemployment accounted for about 2% of the labor force).  And, over most of the post-1982 period, the “unemployment rate” composed of those unemployed for 5-14 weeks was slso trending downward, falling to less than 1.5% of the labor force at business cycle peaks (higher than the 1% or so in the late 1960s and the less than 1% in the early 1950s, but lower than at any other time).

Longer-term unemployment, on the other hand, was not trending downward, but bottoming out at about 0.5% of the labor force both for those currently unemployed for 15-26 weeks and for those currently employed 27 weeks of longer.  This was also higher than in the late 1960s and the early 1950s.  Indeed, the “unemployment rates” for these groups at the business cycle peak (2006-2007) was as high as it has ever been at a business cycle peak (about 0.7%).

What all of this suggests is that the share of total unemployment was falling over time for the two groups with the shortest current spells of unemployment, and rising somewhat for those wilt he longest spells.  And, as the following chart shows, that is exactly what happened.  Here, the consistent pattern is that the share of unemployment in the shorter durations falls in recessions and rises in booms.  But the share both at the recession trough and at the business cycle peaks of those whose current spells of unemployment are shorter than 5 weeks has been falling since the 1980s.  (Indeed the share at business cycle peaks has been falling consistently since the end of world War II.)  At the same time, the share of long-term unemployment has been rising consistently since 1970.

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And in the Great Recession (beginning in late 2007), the “unemployment rate” associated with short-spell unemployment rose by an historically small amount, barely one percentage point, while the “unemployment rate” associated with long-term unemployment (15 weeks or longer) rose from about 1.4% to about 6.3%; it had not exceeded 4.5% in any previous recession, reaching that level in 1983).  And the share of unemployment accounted for by the two shortest duration groups (0-14 weeks) fell to levels not seen since the end of the War—about 13% for those unemployed less than 5 weeks, and about 17% for those unemployed between 5 and 14 weeks—of about 30% of all unemployment.  In no prior recession had the share of unemployment by those unemployed less than 15 weeks fallen below 57%.  And long-term unemployment (15 weeks +) peaked at 70%, when it had never exceeded 43% before. 

So what we observe here is an upward trend in the share of the labor force experiencing long-term unemployment (both at business cycle peaks and at business cycle troughs) and, as a necessary counterpart, a rising share of unemployment concentrated among the long-term unemployed.  If we simply look at the “average” share of unemployment before and after 1980, short-term unemployment (less than 5 weeks) fell from about 48% of total unemployment to about 37%.  Meanwhile, the average share of long-term unemployment (15 weeks or more) rose from about 22% to about 33%.  (The average share of those unemployed 5-14 weeks was about 30% in both periods.) 

It is generally agreed that structural shifts in the economy will lead to increased difficulty among at least some of the unemployed—those disadvantaged by the structural shifts—in finding re-employment.  And that is precisely what has occurred since about 1980.  Let me emphasize that this is consistent with an increase in structural unemployment; it is not a proof that structural unemployment did, in fact, increase.

(All data used here can be found at www.bls.gov.)