Understanding the Lesser Depression

**J. Bradford DeLong, U. C. Berkeley, August 2011

(1) Background

1.2 What Happened: A First Cut

The Employment-to-Population Ratio

Here in Figure 1 is a time-series chart of the single key quantity you need to study to understand business cycles: the civilian adult employment-to-population ratio.

Every month the Bureau of Labor Statistics (BLS) of the U.S. Department of Labor sends its interviewers around the country to conduct the Current Population Survey (CPS). They ask a random sample of civilian American adults questions. One of the questions is: “last week, did you do any work for pay or profit?”3 The proportion of American adults who answer “yes” to our first CPS question—“did you do any work for pay or profit?”—is the civilian adult employment-to-population ratio: the fraction of American adults who say that they have jobs.

The Seasonal Cycle: The first thing that catches my eye in the chart is the high-frequency annual wiggle pattern. Almost every single year the share of American adults with jobs reaches a peak in the early summer, declines in the late-summer vacation season, climbs to a lesser peak in the fall before Christmas, and then collapses in the winter to rise again in the spring and the early summer.

More people want to work in the (early) summer and fall. Some businesses—construction in the northeast and midwest comes to mind—cannot effectively function in winter. Other businesses see sharp increases in the demands for what they make and sell as the Christmas rush approaches.

These factors together add up to the seasonal cycle.

The BLS uses a statistical procedure, its X-11 time series filter, to remove the seasonal cycle from most of the data it collects so that it can present what it calls “seasonally adjusted” time series. Figure 2 shows both versions of the employment-to-population ratio—the unadjusted and the seasonally-adjusted series—from the start of 2002 to the end of 2006.

Figure 3 plots the seasonally-adjusted employment-to-population ratio since 1950. When I look at this chart, I see three things of immediate note (the seasonal cycle has been removed): American feminism, the business cycles, and the latest and largest post-World War II business cycle—our Lesser Depression.

Feminism: The first is the rise of American feminism.

Between the late 1960s and the early 1990s an extra seven percent of American adults—all of them women—entered the labor force and found jobs. This socioeconomic transformation is one of the most interesting and remarkable features of our time, and everybody should study it in depth, but not here: it is not the topic of this course.

The Business Cycle: The second is the so-called business cycle. Semi-regularly in the post-World War II U.S., in 1953, 1957, 1960, 1970-1, 1973-4, 1979-82, 1991-2, 2001-2, and now 2007-9, the seasonally-adjusted civilian adult employment-to-population ratio crashes.

In a short period of time measured in months or seasons it falls by two or three percentage points from its normal level for that time and that stage of the feminist revolution. It then recovers—although it can stick at its relatively low level for a time (as it did in the early 1960s) and when it recovers it recovers more slowly (sometimes much more slowly) then it had crashed. These crashes are what economists call “downturns” or “recessions”: if the downturn is a large one and if the civilian adult employment-to-population ratio remains relatively depressed for a considerable period of years, then economists resort to the D-word—“depression”.