Effects on Employers, Employees Still Unfolding

The economic recession that began in December 2007 dealt a harsh blow to the U.S. labor market. By the close of 2008, both workers and employers found themselves navigating a reconfigured employment landscape. First, mass layoffs beginning in 2008 drove up unemployment claims. Young and middle-aged workers suffered high unemployment rates, and many older workers who lost their jobs had no choice but to start taking retirement payments sooner than planned. A large number of these older workers who had not saved enough or lost savings in the investment market also had to look for new jobs rather than fully retiring.

Second, because employers were reducing their labor forces, workers who managed to stay employed tended to remain where they were, especially older workers who couldn't afford to retire. All these economic forces resulted in more people scouting for work in a considerably smaller job market. Although the recession officially ended in June 2009, the labor market still has not recovered.

To quantify the impact of these changes on employment and labor force trends, job turnover and retirement patterns, we calculate and discuss statistics based on the U.S. Census Bureau's Current Population Survey (CPS) and information provided by the Department of Labor's Bureau of Labor Statistics.

Changes in unemployment and labor force participation

The recession triggered higher unemployment rates across all age groups (see Figure 1). The unemployment rate was highest among workers aged 25 to 34, peaking at almost 11% in the first quarter (Q1) of 2010. The comparable peak unemployment percentages were 9.4% for those 35 to 44, 8.5% for those 45 to 54, 7.5% for those 55 to 64, and 7.3% for those 65 and older.

Among the 35-to-44 age group, unemployment swelled from 3.5% in Q4 of 2007 to 7.9% in Q1 2011. Over the same period, unemployment rates increased from 3.3% to 7.7% for those 45 to 54, and from 3.2% to 6.5% for those 65 and older. Workers aged 55 to 64 suffered the largest increase in unemployment. Between Q4 2007 and Q1 2011, the unemployment rate for these workers jumped by 145% — from 2.9% to 7.1%. Over the same period, unemployment more than doubled among workers 25 to 34 years old and rose by 103% among workers aged 65 and older

Young workers had the most difficulty entering the workforce over the past four years, and a larger percentage of older workers were job-hunting in 2009 and 2010 than in 2007. Although the recession officially ended in June 2009, unemployment didn't peak until Q1 2010, after which it declined slightly.

Figure 1. Seasonally unadjusted quarterly unemployment rates by age, Q4 2007-Q1 2011

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Source: Bureau of Labor Statistics.

Not only have more people been unemployed since the economic recession began, many of them have been unemployed for longer periods. As Figure 2 shows, the average unemployment period doubled from 16.8 weeks in 2007 to 33.0 weeks in 2010, and the median unemployment period more than doubled — from 8.5 weeks to 21.4 weeks.

Figure 2. Average and median unemployment duration, 2007-2010

Source: Bureau of Labor Statistics.

Since the economic crisis began, more people have been unemployed for 15 weeks or longer. As Figure 3 shows, in 2007, the percentages of the unemployed who found new jobs in less than five weeks or between five and 14 weeks were 35.9% and 31.5%, respectively. By 2010, those percentages had dropped to 18.7% and 22.0%. Meanwhile, the percentage of people still job-hunting after 15 or more weeks was 32.5% in 2007. By 2010, that rate had reached a worrisome 59.3%.

Figure 3. Average unemployment duration, 2007-2010

Source: Bureau of Labor Statistics.

Figure 4 shows labor force participation rates — the percentage of those who either have a job or are looking for a job — by age.

Young and middle-aged workers had a reduction in labor force participation. For workers aged 25 to 34, workforce participation fell from 83.4% in Q4 2007 to 81.5% in Q1 2011. Over the same period, workforce participation fell from 84.0% to 83.0% for those aged 35 to 44, and from 82.3% to 80.8% for those aged 45 to 54.

On the other hand, more older workers were participating in the labor market over the period. Between Q4 2007 and Q1 2011, workforce participation rates increased from 64.1% to 64.3% for workers aged 55 to 64, and from 16.4% to 17.7% for those aged 65 and older.

Figure 4. Seasonally unadjusted quarterly labor force participation rates, Q4 2007-Q1 2011

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Source: Bureau of Labor Statistics.

People leave the labor force for different reasons. Some appear to have given up on job hunting, at least for now, and the reasons they give include being unable to find work, lacking sufficient education or training, believing employers view them as too young or old, and being subject to other types of disfavor.

As Figure 5 shows, the percentage of people who stopped looking for a job because they were discouraged jumped sharply for both men and women due to the recession, particularly in 2010. From 2007 to 2010, the percentage of men who gave up their job search rose from 11% to 25%; the percentage of women who stopped seeking employment rose from 6% to 14%.

Figure 5. Job-seekers who gave up their employment search, 2007-2010

Source: Bureau of Labor Statistics.

As Figure 6 shows, in 2010, more than one in five job-seekers aged 25 and older were "officially" discouraged about their job prospects. The percentage of those aged 55 and older who stopped looking because they were discouraged tripled between 2007 and 2010 — rising from 7% to 21%. Over the same period, the percentage of young people — those aged 16 to 24 — who became discouraged doubled from 7% to 14%. Among those aged 25 to 54, the percentage of would-be job-seekers who gave up more than doubled — rising from 10% in 2007 to 22% in 2010.

Figure 6: Job-seekers who gave up their employment search, by age, 2007-2010

Source: Bureau of Labor Statistics.

Changes in job turnover

The number of job opportunities dropped significantly during the last four years. To get a grasp on how the economic recession affected job turnover, we look at the percentages of private-sector employees who voluntarily quit and who were laid off. We also look at the change in median job tenure for men and women separately.

As Figure 7 shows, the number of people voluntarily quitting their jobs has dropped steadily since 2007. In 2007, "voluntary quits" were 28.7% of total employment. By 2009, voluntary quits were down to 17.8% (the number then rose to 18.6% in 2010). The number of layoffs (and discharges), however, increased from 2007 to 2009. As shown in Figure 8, layoffs were 18.4% of total employment in 2007, peaked at 22.8% in 2009 and then dropped to 17.8% in 2010.

Figure 7. Private-sector employees who voluntarily quit their jobs, 2007-2010

Source: Bureau of Labor Statistics.

Figure 8. Private-sector employees who were laid off or discharged from their jobs, 2007-2010

Source: Bureau of Labor Statistics.

The economic recession has had contradictory effects on job tenure. Layoffs cut tenure short for many workers. Job losses are more likely during economic downturns for midcareer workers with less seniority and less tenure than for older workers with longer tenures. On the other hand, the scarcity of job opportunities brought on by the recession lengthened tenure for workers who chose to remain with their current employer. Also, many older workers who lost retirement savings decided to keep working for their employers rather than retiring. Figures 9 and 10 look at the net effect of job tenure for women and men separately.

Job tenure for working women has held fairly steady over the recession. With the exceptions of the 25-to-34 and 55-to-64 age groups, median tenure for women rose between 2006 and 2008 and again in 2010. Tenure for working women aged 25 to 34 fell from 2.8 years in 2006 to 2.6 years in 2008, before rising. Tenure for women aged 55 to 64 dropped slightly from 9.8 years in 2008 to 9.7 years in 2010. Overall, the median tenure for women rose from 4.7 years in 2006 to 5.1 years in 2010.

Tenure for working men was somewhat more volatile. For working men aged 25 to 34, median tenure dropped from 2.9 years in 2006 to 2.8 years in 2008, and then rose to 3.2 years in 2010. Job tenure rose steadily for men aged 35 to 44, 45 to 54 and 55 to 64. For men between the ages of 35 and 44, job tenure rose from 5.1 years in 2006 to 5.3 in 2010. Similarly, for men in the 45-to-54 age group, job tenure rose from 8.1 years to 8.5 years, and for the 55-to-64 age group, tenure rose from 9.5 years to 10.4 years.

Median tenure for working men aged 65 and older has fluctuated widely since 2006, when it was 8.3 years. In 2008, median job tenure for men aged 65 and older rose sharply to 10.4 years and then dropped to 9.7 years in 2010. Overall job tenure for men rose from 5.0 years to 5.3 years between 2006 and 2010.

Despite (or because of) the high volume of layoffs during the recession, more people are remaining with their employer. Thus, the overall effect of the economic recession has been to increase job tenure

Figure 9. Median job tenure (years) for women, by age, 2006-2010

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Source: Bureau of Labor Statistics.

Figure 10. Median job tenure (years) for men, by age, 2006-2010

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Source: Bureau of Labor Statistics.

Changes in retirement patterns

The economic recession has pressured some older Americans to keep working, although the trend toward longer careers was already in place for other reasons. First, the Social Security full retirement age is increasing from 65 to 67. Second, in 2000, Social Security eliminated its earnings test for retirees past the normal retirement age, which reduced Social Security benefits by $1 for every $2 earned above a certain level of income for people at full retirement age and older. This change encouraged more people to continue working while receiving Social Security benefits. Third, there has been a shift away from employer-sponsored defined benefit (DB) plans that encourage early retirement. The recession, however, may now turn out to be the most powerful influence on when workers retire.

We use the CPS to estimate the age at which private-sector workers stopped working for pay. As a consequence of the recession, between 2006 and 2009, the average age at full retirement rose from 63.7 to 64.9 for women and from 64.2 to 65.4 for men (see Figure 11). It seems that both men and women decided to work at least one year longer.

Figure 11. Mean and median age at which women and men stopped working completely, 2006-2009

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Source: Calculations by the author, based on the CPS.

Not only are people delaying full retirement, we also observe changes in the percentage of people who had already retired or retired earlier than planned from one company and then took another job. Using the CPS, we estimate the percentage of people aged 55 to 70 who received DB and/or defined contribution (DC) plan retirement benefits (or a military pension) while also being employed at least part-time throughout the year.

In 2006, the percentage of pensioners who worked at a job all year was 16.7% for women and 22.9% for men (see Figure 12). In 2007, the percentage of female and male pensioners who worked at a job the entire year dropped to 15.4% and 21.7%, respectively. Considering that 2007 was a good year in the stock market, it is not surprising that more older people stopped working. By 2008, the percentage of pensioners who were also working dropped to 14.4% for women but rose to 22.1% for men. In 2009, the percentages of working pensioners rose to 14.6% for women and 22.7% for men.

Figure 12. Percentage of pensioners who worked at a job the entire year, by gender, 2006-2009

Source: Calculations by the author, based on the CPS.

New distribution of labor

Because the economic recession changed labor force participation, unemployment, quits, layoffs and retirement patterns, there is a new distribution of workers — by age.

Since the recession, the employment trend has shifted toward employing more older workers across all industries. Figure 13 shows the distribution of workers by age in major industries in 2006 and 2010. Looking at the broad categories of workers younger than 55 and 55 and older, we see an increase in workers 55 and older in all industries. The largest increase in older workers — 7% — is in Education-Health Services.

Across all industries, there were fewer workers in the 25-to-34 and 35-to-44 age groups in 2010 than in 2007. It appears that workers with less tenure were more likely to lose their jobs during the recession. The percentage of workers in the 60-to-64 and 65-to-69 age groups increased, however. Thus, even people who are eligible for early or normal Social Security benefits are continuing to work.

There are more workers 60 and older in Education-Health Services and Wholesale-Retail than in Construction-Mining and Information. The Education-Health Services and Wholesale-Retail industries offer more part-time opportunities and flexible schedules. Many jobs in the Construction-Mining industry are unionized and can be hard physically, and human capital tends to become obsolete quickly in the Information industry. These characteristics might be preventing older workers from working beyond the industries' typical retirement age and discouraging those seeking part-time work. 1

Figure 13. Employee distribution within industry, by age, 2006 and 2010

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Source: Calculations by the author, based on the CPS.

Conclusions and implications

The fallout from the economic recession is having an enormous effect on the U.S. labor market, leading to changes in corporate productivity, reducing revenue and altering the way companies plan their long-term business goals. Retirement patterns are different, at least partly as a consequence of the shift from traditional DB plans — a useful tool in controlling retirement flows — to hybrid pensions and DC plans. Employers now have considerably less control over when workers retire (it is illegal to dismiss employees based on age or seniority). The slowdown in retirement will likely continue as America rides out the crisis, with the effects rippling outward to employers and the overall workforce for several reasons.

At this time, many young and middle-aged workers are struggling to find or keep a job. Labor force participation rates have dropped for these groups because many individuals have become frustrated and given up job hunting. Those who are out of work are missing the on-the-job experience they need to sustain their intellectual capital. Workers who remain unemployed for too long find their job prospects diminished as they become less attractive to potential employers.

Because the crisis has shrunk seniors' savings, many older workers find they must continue working. As a result, there are more older people in the American workforce than previously. When the economy improves and these older workers do retire, possibly en masse, it might be difficult to find enough qualified, experienced workers to fill those vacant positions.

The joint impact of the economic recession and higher benefit costs has also complicated employers' hiring decisions. Companies are now dealing with high health care costs and considerable uncertainty about health care reform. Economic conditions have also driven up pension costs. Between the higher known costs and the uncertainty, many companies are waiting for the dust to settle before hiring new employees.

The recession reduced revenue for many employers, which made them wary about investing in new products and businesses. Given their current pessimism about the economic future, many are choosing to hold on to their cash rather than hire new employees to expand. This disinclination to expand — business development is now stagnant — is not promising. The job outlook remains somewhat discouraging and uneven, and the "Great Recession" and its fallout have hit American workers hard. It remains to be seen how long older Americans will continue working, the long-term effects on younger workers currently shut out of the workforce, and the consequent impact on employers' productivity and revenue.


Footnotes

1Hill, Tomeka M. "Why Doesn't Every Employer Have a Phased Retirement Program?" Benefits Quarterly, Volume 26, No. 4. Fourth Quarter, 2010, pp. 29-39.