- The Washington Times - Thursday, November 12, 2009

ANALYSIS/OPINION:

In October, the unemployment rate leaped into double-digit territory, to 10.2 percent from 9.8 percent in September. It’s now within catch-up distance of the 10.8 percent postwar peak recorded at the trough of the 1981-82 recession. Whether it will make a new postwar high in the months ahead will be a close call.

The nation focuses on the unemployment rate as the primary indicator of the health of the labor market. It’s the headline number and has been historically. Accordingly, the current labor market recession to date has been labeled the second worst in the postwar era. But is it? A comparison of key data in the 1981-82 recession and the current recession tell the story. The prior recession dates from July 1981 to November 1982, several months shorter than the present recession to date, which started in December 2007. The 7.2 percent unemployment rate going into the earlier recession was considerably higher than the 4.9 percent rate at the start of this recession because of the incomplete recovery from a downturn in 1980.

Looking at the change in the unemployment rate in the two periods, the increase in the earlier recession was 3.6 points, much less than the 5.3 point rise so far in this recession.

The peak 10.8 percent rate in 1982 also needs a closer look. During the 1981-82 recession, the unemployed persisted in their job search, and the labor force participation rate (labor force as a percent of the working-age population) actually rose, contrary to its usual pro-cyclical behavior. (Typically, the participation rate rises during economic expansions and falls during recessions.) Despite the severe job shortage, there was little evidence of large-scale withdrawals or nonparticipation in the labor market in 1981-82. Consequently, the unemployment rate escalated relative to employment, pushing up the unemployment rate to a postwar record.

By comparison, in the current recession the labor force participation rate behaved more normally and declined as many of the unemployed and potential labor force entrants became frustrated and withdrew from or refrained from entering the labor force. The growing numbers of hopefuls who retreated to the sidelines didn’t qualify to be counted as officially unemployed, which had the effect of slowing the rise in the unemployment rate.

If labor force participation behavior in the 1981-82 recession had been more typical and declined, even if only moderately, the unemployment rate at the time would have risen into the high single digits, but not into double digits, and today’s unemployment rate would hold the postwar record.

Turning to employment, nonfarm jobs have fallen by 5.3 percent in this recession compared to 3.5 percent in 1981-82, and total civilian employment fell by 1.6 percent then compared to 5.5 percent now. The decline in the employment rate (employment as a percent of the working-age population) was less than half as much then as the sharp 4.2 point falloff in this recession. Whereas involuntary part-time employment rose by nearly 2 million or 42 percent in 1981-82, it doubled in the current recession, rising by 4.6 million.

The hours-worked picture is also worse this time around. The length of the workweek for nonsupervisory workers in the private nonfarm sector fell by 0.6 hour in the 1981-82 recession, less than the 0.8 drop so far in this recession, with the workweek declining to a record low of 33 hours.

Average hourly and weekly earnings for these workers did relatively better in the earlier recession, rising by 7 percent and 5.1 percent, respectively, compared to 5.7 percent and 3.2 percent gains in this recession. But prices were rising somewhat faster then than now, so in inflation-adjusted dollars, hourly earnings in the earlier recession held steady while in this recession, they have risen by about 3.6 percent.

Taken together, these comparisons tell us that for the most part, the current recession is bleaker than the recession of 1981-82, as dire as that was. Importantly, when today’s 10.2 percent unemployment rate is compared to the peak November 1982 unemployment rate adjusted for aberrant labor force participation behavior, the current rate is significantly higher - the highest in the postwar period.

What to do? We are approaching the holiday season, and it would be immensely helpful if the president and Congress gave their fellow Americans the much-needed gift of an extended across-the-board federal tax holiday - from income to payrolls - a quicker and more effective way than more stimulus spending to boost consumer demand and, not least, employment.

Alfred Tella is a former Georgetown University research professor of economics.


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