The Great Recession Lives Up to Its Name

By Dave Senf
September 2010

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By most labor market measures, the current recession and recovery have been more challenging than other recessions over the past 30 years.

If a falling unemployment rate is the essential sign of an improving job market, then Minnesota’s job picture has been on the mend for a year, starting last June when the state’s jobless rate peaked at 8.4 percent. 

Unemployment inched down in 10 of the months since the peak and held steady during the other four months, pushing unemployment down to 6.8 percent during June and July. Figure 1 shows Minnesota’s unemployment rate over the last 30 months, starting with a 4.7 rate in December 2007, which was the start of the 2007-2009 recession. Monthly seasonally adjusted unemployment rates over the 30 months following the start of each of the previous three recessions are also displayed.  

Minnesota’s unemployment spike during what has become known as the Great Recession was significantly higher than the previous two recessions, which were both eight months long and mild. Unemployment rose gradually during the 1990-91 and 2001 recessions, peaking roughly within a year after they started, spiking by 0.6 and 1.2 percentage points, respectively, before heading down.

Finding a job became moderately more difficult during these two recessions than in normal times, but it was nowhere near today’s challenging job market. Only job seekers around 45 years or older can remember having to deal with a job market as difficult as the last two years. 

Older workers watched Minnesota’s unemployment rate soar to 9.1 percent three decades ago during the 1981-1982 recession, when unemployment jumped 3.6 percentage points before topping out after 18 months in December 1982. 

In the latest recession, unemployment in Minnesota increased 3.7 percent over 18 months from late 2007 to the middle of 2009. After peaking last June, Minnesota’s unemployment rate has been declining slightly slower when compared to the drop in unemployment 30 years ago.

Unemployment will likely continue to recede slower than 30 years ago, with U.S. economic growth in the next few years expected to lag behind the robust growth experienced after the 1981-82 recession. The unemployment rate after that recession remained above its pre-recession level until the middle of 1986, five years after the recession started and 3½ years after peaking.

Even if economic growth exceeds expectations, Minnesota’s unemployment rate may take longer to improve than in the past. Today’s job market, while gradually improving, is in worse shape than 30 years ago, even though both recessions had a 6.8 percent unemployment rate one year after peaking.

Unemployment rates are a quick gauge of labor market conditions but can be misleading if other labor market measures, such as labor force growth, are ignored. Unemployment rates can be held down during a weak job market if unemployed workers become discouraged with the lack of job opportunities and drop out of the labor force. The reverse also can occur when the job market improves. More unemployed workers find jobs when hiring heats up, but brighter job prospects encourage people to enter the labor force where initially they are counted as unemployed. 

Figures 2 and 3 compare other Minnesota labor market indicators, including labor force growth during the 1981-82 and 2007-09 recessions. All of them indicate today’s job market, while on the rebound, is weaker than the job market rebound 30 years ago. The labor force expanded faster 30 years ago as stronger job growth drew workers into the labor force.  

Minnesota’s seasonally adjusted labor force after expanding earlier this year has slipped over the last few months, leaving the state’s workforce largely unchanged for more than a year. Minnesota’s unemployment rate drop would look more encouraging if the labor force had been expanding the last 12 months.  

Sluggish labor force growth isn’t surprising, given the lackluster job picture. Job growth has resumed in the state following the record decline in 2009, but the turnaround has been weak as employers remain reluctant to ramp up hiring. Employment, as measured by household employment, has rebounded to the pre-recession level but remains way below the pre-recession level when measured by payroll employment. [1] Job growth, measured by household or payroll employment, following the 2007-09 recession has so far been significantly weaker than job growth following the 1981-82 recession (see Figure 2).

Current labor market conditions also fall short of conditions 30 years ago based on initial claims for unemployment, a proxy for the layoff rate. Initial claims doubled during the Great Recession and are still 25 percent higher than pre-recession levels. The spike in initial claims three decades ago was smaller, occurred quicker, and faded faster (Figure 3). A higher rate of hiring and a lower rate of layoffs in the 1981-82 recession produced a more robust job recovery than today. 

As these numbers indicate, the Great Recession is an appropriate name for this economic downturn and a painful reminder of the challenges that job seekers face in finding employment.

Endnote:
[ 1] More information on the different sources of employment data is available at www.positivelyminnesota.com/assets/lmi/glossary.shtml .

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