Wednesday, March 30, 2011

Measuring Unemployment by Family

Copyright, The New York Times Company

New data from the Census Bureau show that the frequency of families without employment was sharply higher during the recession — but still fairly rare.

Many indicators of economic activity, like the poverty rate and consumer spending, are measured at the family level, but widely cited labor market statistics like the unemployment rate are measured at the level of individuals.

The unemployment rate, for example, is the fraction of people who are actively seeking work (or on layoff) and are not employed. It is the fraction of people working — not the fraction of families working — that is one of the primary indicators used by the National Bureau of Economic Research to declare a recession.

These standard personal labor market indicators are incomplete and potentially misleading, because they do not put labor market activity in a family context. Among other things, a majority of working-age adults live with a spouse and apparently share their income. More than 85 percent of people live in families.

Presumably, it’s less traumatic for a family to have one of its two employed members out of a job than to have all its employed members out of a job.

For these reasons, it would be interesting to know what percentage of families have somebody working, as opposed to the percentage of people who have a job. The two measures could be more or less the same if each family had at most one worker but could be quite different when many families have two or more people who could potentially work.

In a study that Yona Rubinstein of the London School of Economics and I did several yeears ago, we calculated such measures for the years 1965 to 2000. We focused on prime-age families -– that is, families headed by an adult (or adults) 25 to 54 and therefore not expected to be in school or retired (two activities that interfere with working). On average, all but 5 percent of people lived in a family with at least one person working (this includes one-person families). By comparison, almost 20 percent of prime-age adults were not employed.

In other words, it is much more common for a person to be without a job than for a family to be without a job.

As Catherine Rampell wrote in a post on Economix on Monday, the Census Bureau has released family employment statistics through 2010. The Census statistics are a bit different from those I cite above, because they include households headed by retirees and exclude people who live by themselves.

Not surprisingly, Professor Rubinstein and I found that the family nonemployment rate increased during recessions, like those of the early 1980s and of the early 1990s. The nonemployment rate increased by almost a third during those recessions, although even at their peak nonemployment was rare for families.

The latest Census Bureau release includes the most recent recession but needs some adjustment for its inclusion of retirement-age people. As a rough adjustment, I estimated the number of elderly people who live in families of more than one and the number of elderly people who live in families (of more than one) and have jobs.

The results are shown in the chart below (the Census Bureau technical notes and my paper explain why a more precise adjustment requires a lot more work).

The severity of this recession is obvious in the data, with the series reaching new highs in 2010. Still, it is relatively uncommon for a family to have nobody who is either working or retired.


TGGP said...

These folks think instead of a natural resource curse, there might be a resource blessing:

Steve Roth said...

Isn't the long-term trend the most interesting thing about your graph?

Business cycles are all very interesting, but which direction are we heading, and what's the future for our grandchildren?