Labor Flows

Yesterday, the Conscience Warrior Newsfeed linked to this interesting post from the always-excellent FRED Blog, which shows comparisons of flows into unemployment from the employed and those not in the labor force and flows out of the labor force from the employed and the unemployed. The following is an expansion of that analysis.

First, let's discuss the variables. We'll start with the basic definitions of employed, unemployed, and not in the labor force. For these, we can rely on our friends at BLS:

Employed: People with jobs are employed.

Unemployed: People who are jobless, looking for jobs, and available for work are unemployed.

Not in Labor Force: People who are neither employed nor unemployed are not in the labor force.

Thus we have the following identity: Population = Employed + Unemployed + Not in Labor Force

From these definitions, we can create flow variables that represent the monthly movement from one category to another, since the Current Population Survey is longitudinal. (It tracks the same people over time.) Further, we can make some intuitive assumptions about who is represented by each flow variable.

Employed to Unemployed: These are people who were employed, but now are out of work and looking for a job. This is most likely an involuntary situation.

Employed to Not in Labor Force: These are people who were employed, but now are out of work and not looking for a job. This could be because they retired, or entered school. This is more likely to be a voluntary situation.

Unemployed to Not in Labor Force: These are people who were not employed but looking for work, but no longer looking for a job. This could be because they are discouraged workers, or because they retired after being unemployed, and is most likely an involuntary situation.

Unemployed to Employed: These are people who were not employed but looking for work, but are now employed.

Not in Labor Force to Employed: These are people who were out of work and not looking for a job, but are now employed. They may be recently graduated students, for example.

Not in Labor Force to Unemployed: These are people who were out of work and not looking for a job, and are still out of work but now looking for a job. These may be people who had been discouraged workers, but are now looking again for a job, or recently graduated students who have not yet found work.

(Technical note: all of these variables measure persons 16 years and older, and are seasonally adjusted.)

From Where are They Coming?

This graph shows comparisons of the previous states of currently employed, unemployed, and out-of-labor-force persons.



(Employed or Unemployed) to Out-of-Labor-Force
The red line shows the difference between employed persons and unemployed persons exiting the labor force. What we see from the graph is that, roughly, there are 2 million more people retiring or leaving work for school than giving up looking for work per month.

(Employed or Out-of-Labor-Force) to Unemployment
The brown line shows the difference between employed persons and persons not in the labor force becoming unemployed. What we see from this series is that there are far more people entering unemployment from out of the labor force than from employment.

(Unemployed or Out-of-Labor-Force) to Employed
The green line shows the difference between unemployed persons and persons out of the labor force becoming employed. We can see from the graph that far more of the newly employed were previously not looking for work.

To Where are They Going?

This graph shows comparisons of the current states of previously employed, unemployed, and out-of-labor-force persons.



From Out-of-Labor-Force to (Employed or Unemployed)
The blue line shows the difference between newly employed persons and newly unemployed persons coming from out of the labor force. We can see that many more people entering the labor force are doing so by becoming employed, rather than simply by beginning to look for work.

From Unemployed to (Employed or Out-of-Labor-Force)
The orange line shows the difference between people newly employed, after being unemployed, and unemployed people who have exited the labor force. This is where the unemployed are going. We can see that more unemployed people are finally starting to gain employment rather than leave the labor force entirely. This is about the best news in this analysis.

From Employed to (Unemployed or Out-of-Labor-Force)
The black line shows the difference between people newly unemployed, after being employed, and people exiting the labor force from employment. This is where the employed are going. Those becoming unemployed are simply losing their jobs, but those exiting the labor force directly from employment are most likely either retiring or entering school.

Conclusions

1. Many more people are retiring or leaving work for school, rather than giving up looking for work.

This is reflective of the demographic shifts we are seeing in the United States, as a large bulge of people (the baby boomers) are retiring. It is good that more people leaving the labor force are doing so voluntarily, but this demographic trend will have social insurance implications in the coming decades.

2. There are still a lot of people starting to look for work after a period of not looking.

This is going to mitigate the falling unemployment rate, but is still a mostly unalloyed good.

3. Many more labor-force entrants are immediately entering jobs, rather than simply looking for jobs.

This tracks with the record job creation numbers we've seen over the last several months, and is a very positive sign.

4. The employed are much more likely to leave the labor force than to become unemployed.

This is the other side of the demographic coin. Since fewer people are losing jobs involuntarily, the glut of retiring people dwarfs them. This is good, but will still pose problems down the road.

5. The best result of this analysis is that more unemployed people are finally starting to enter jobs than leave the labor force entirely.

The unprecedented period in which more unemployed people exited the labor force than found jobs is mercifully (nearly) over. As the orange line above shows, we had 25 years in which more people found jobs than quit looking. Even the slight level shift after the 2001 recession still resulted in a positive measure. What may have looked like another level shift (to a negative number) in 2008 might just prove to be temporary.