A cohort component analysis of the 2007–2009 recession
A model of employment change between 2007 and 2010 in the absence of the recession was compared with actual employment change as measured by the Current Population Survey. Not surprisingly, results show that actual employment was lower than the model predicted for all age groups; however, differences were much larger for younger workers. Full-time employment was much lower than the model predicted, while part-time employment was much higher. Actual employment change varied widely among occupation and industry groups, but nearly all groups had employment that was lower than the model predicted.
The recession of 2007–2009 resulted in the loss of millions of jobs, although not all sectors of the economy were affected equally. Much has been written about the employment effects of the recession, with many reports focusing on the change in overall or specific sector employment over the course of the recession.1 However, many of these analyses do not take into account how employment would have changed without the recession. This article uses a simple projection model to create a counterfactual scenario of where the economy would have been without the recession and compares the results of this model with actual employment changes to see the impact of the recession on total employment, full- and part-time workers, occupational employment, and industry employment.
Model specification and implementation
The cohort component method, which analyzes changes within age cohorts between two time periods, was used to construct a projection of what employment would have been if there had been no recession. The cohort component method is typically used for projecting population but can be used to estimate changes over time in any demographic or labor force characteristic. The advantage of the cohort component method over simply extrapolating from historical trends is that changes in age demographics can be taken into account, which gives rise to more reliable results and more detail in the composition of results. For example, using the cohort component method allows for analysis of modeled versus actual change in employment levels for younger workers as compared with older workers.
The period 2004–2007 is used to represent a typical nonrecessionary period, and employment change is calculated for 5-year age cohorts over that period. These percent changes in employment from the 2004–2007 period were applied to cohorts with the identical age ranges in 2007—for instance, the percent change for 21-to-25-year olds in 2004–2007 was applied to people ages 21 to 25 during the 2007–2010 period—to come up with projected 2010 employment for each cohort using the following equation:
To implement this cohort component model, microdata from the Current Population Survey (CPS) for the years 2004 and 2007 were used to calculate employment for each cohort. Table 1 shows the total employment in each of the cohorts along with the percentage change in employment between the years 2004 and 2007. For example, employment of the cohort that was 21 to 25 years old in 2004 grew from about 14 million in 2004 to about 16 million in 2007, a growth rate of about 14 percent.
|Age||Employment (in thousands)||Age||Employment (in thousands)|
Source: Current Population Survey.
The 2004–2007 growth rates for each cohort were then applied to 2007 CPS estimates of employment for the same initial age cohort to obtain a model estimate of 2010 employment. Table 2 shows the actual employment in 2007 along with the 2004–2007 growth rate derived from the cohort analysis of the same age group in 2004 (see table 1), as well as the modeled estimate of 2010 employment for each cohort. This model was implemented separately for each of the following: total employment (as shown in tables 2 and 3), full-time employment, part-time employment, employment by occupation groups, and employment by industry groups.
1 For example, see “The Recession of 2007–2009,” BLS Spotlight on Statistics, February 2012, http://www.bls.gov/spotlight/2012/recession/pdf/recession_bls_spotlight.pdf Christopher J. Goodman and Steven M. Mance, “Employment loss and the 2007–2009 recession: an overview,” Monthly Labor Review, April 2011, pp. 3–12, http://www.bls.gov/opub/mlr/2011/04/art1full.pdf