Flows into and out of employment in recent recessions

Changes in the employment-population ratio are attributable to changes in the difference in flows into and out of employment. Relative to a situation in which the employment-population ratio is stable or increasing, decreases in the ratio can be attributed to a combination of declining inflows to employment and increasing flows out of employment.

[Chart data—TXT]

During the 6-month period prior to March 2007, the employment-population ratio was relatively stable—within a tenth of a percentage point of its March 2007 value of 63.3 percent. Which flows changed to cause the ratio to drop after a period of stability?

From the most recent unemployment rate trough in March 2007 to December 2008, outflows from employment exceeded inflows to employment by about 170 thousand per month, so the employment-population ratio declined.

Comparing the flows for the 6 months before March 2007 to the period from March 2007 to December 2008 shows that inflows declined by an average of 416,000 while outflows declined by an average of 73,000. Thus, the decline in the employment-population ratio over the period as a whole was due entirely to declines in flows into employment.

In the recession of 2001, the unemployment rate was 3.9 percent at its trough in December 2000 and increased to 6.3 percent by June 2003. (The recession officially began in March 2001.) The employment-population ratio declined from 64.4 percent to 62.3 percent over the same period. The recent changes in flows into and out of employment contrast sharply with the pattern found in the 2001 downturn, as shown in the chart.

These data are from the Current Population Survey. For more information, see "Trends in labor force flows during recent recessions," (PDF) by Harley Frazis and Randy Ilg, Monthly Labor Review, April 2009.