Who Lost Work During the Great Recession?

Casey B. Mulligan is an economics professor at the University of Chicago.

Young people have seen their work hours drop the most during this recession, while the elderly are actually working more than they did before.

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Perspectives from expert contributors.

Using data from the Census Bureau’s Household Survey via the National Bureau of Economic Research, I calculated the average hours worked by age for 2007 (people not working during the week of the survey count as zero hours worked) and then again for 2010. The chart below displays each age group’s percentage change from 2007 to 2010. For example, the chart shows that the average 16-year-old in 2010 worked 40 percent fewer hours than the average 16-year-old did in 2007.

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We all know that hours worked in 2010 were considerably fewer than they were before the recession began, which the chart shows: most of the age groups have a negative percentage change.

But the chart also shows that labor losses lessen with age and are positive for a number of age groups. In percentage terms, work hours fell the most for teenagers, reflecting the high teenage unemployment rate. After the teenagers, work hours fell the most for the age groups 20 to 29. Work-hours losses for groups in their 30s and 40s ranged 5 to 11 percent. Work hours also fell for age groups 50 to 59, but typically less in percentage terms than for the age groups aged less than 50.

As I noted a few weeks ago, average work hours actually increased for the oldest age groups.

Seniority layoff practices would tend to reduce hours worked most for young people because, naturally, they tend to be employers’ more recent hires. You might think it would make sense for employers to retain their most experienced workers, but downsizing employers tend to offer and encourage early retirement to people in their 50s and early 60s, who are paid more than recent hires and are starting to think about leaving the workplace.

Yet the chart does not show especially large declines in hours for those age groups (nor can seniority practices by themselves explain why the elderly end up working more).

Of course, an employer that shuts down does not lay off based on seniority but lays off everyone.

Another possibility is that the labor market distinguishes, at least in a rough way, among workers according to their willingness to work, and that the stock market and housing market crashes have especially stimulated older people to work more. (Young people, on the other hand, had fewer assets before the recession, so a decline in asset prices has little direct impact on them.) This effect tends to increase with age because the propensity to own assets for current needs and future retirement also increases with age.

To the extent that minimum wages reduce employment of people who would otherwise earn a wage less than the minimum, the minimum wage increases of 2007, 2008 and 2009 may be another factor, because propensity to earn near the minimum wage tends to decline with age (although that propensity is not particularly low for the elderly, who do not have work-hours losses on average).

It is also possible that the ability to efficiently find a new job in a tough labor market is a skill, and people tend to accumulate that skill with age.

Economists are still digesting the labor market data from the Great Recession, but for now it appears that getting back to the pre-recession labor market especially requires creating jobs for young people.

Employment of Elderly: Supply or Demand?

Casey B. Mulligan is an economics professor at the University of Chicago.

The supply of elderly workers increased during the recession, and employment rates of the elderly increased along with it. This result is difficult to reconcile with Keynesian characterizations of the labor market.

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Last week I showed how employment per capita had increased slightly among elderly people since 2007, while employment per capita in the general population plummeted. I, and other economists previously, have concluded that employment of the elderly deviated so much from the general population because of changes in elderly labor supply.

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Recession-era supply episodes like these are important to identify, because they can prove or undercut Keynesians’ fundamental argument (so far unproved) that supply does not matter during a recession or during a “liquidity trap” such as we’ve experienced since the recession began.

(One Keynesian rhetorical trick is to “prove” the supply claim by pointing to the existence of unemployment. Of course, unemployment exists in large numbers, but that does not tell us whether, and how much, labor supply affects employment rates. Only the latter indicates the value, if any, of Keynesian policy prescriptions.)

In reaction to my post last week, Dean Baker, co-director of the Center for Economic and Policy Research, offered some analysis of weekly earnings and concluded that the demand for elderly workers increased during the recession even while it plummeted for everybody else. Supply played little or no role, he said.

Generally, I agree that wage rates are an important variable for gauging the relative importance of supply and demand (see, for example, my analysis of labor supply during the summer season, which featured hourly wage rates as one of three key indicators). But in this case, Dr. Baker’s weekly earnings results ran into a few contradictions.

First, what was the demand shift experienced by elderly workers that was so large as to completely offset the demand shift purportedly experienced by the rest of the population? Perhaps elderly workers picked up some of the hundreds of thousands of jobs that teenagers and other unskilled workers lost thanks to the minimum wage increases? Dr. Baker did not say.

Second, a huge increase in demand for the elderly might be expected to reduce their unemployment rates, yet the chart below shows how unemployment rates for the elderly followed very much the same time pattern as unemployment rates for the general population. (According to the Census Bureau, every person is either employed, unemployed or not looking for work, which is why unemployment and employment can move in the same direction). Dr. Baker’s purported demand shift is not visible in the unemployment data.

Third, Dr. Baker’s own data suggested that something other than demand was driving most, if not all, of the earnings changes he measured. Elderly employment per capita increased only 4.5 percent. Demand increases by themselves usually increase wage rates about the same amount that they increase employment, which in this case would be well less than 10 percent (for example, during Christmas season, when demand increases employment rates more than it increases wages, not less).

But Dr. Baker measured a weekly earnings increase of at least 17 percent, which tells me that weekly earnings were increasing for reasons other than demand. (This may have been because elderly people were working more hours per week, took on jobs with greater responsibility or because the composition of the elderly work force changed in the direction of greater skill. See this paper for a technical analysis of these forces.)

Labor supply, rather than labor demand, readily explains why elderly unemployment rates tracked the general population’s during the recession, while elderly employment did not: the willingness (or necessity, if you want) of working had changed more for the elderly than for the rest of the population. The fact that labor supply really does matter during recessions means that Keynesian policy prescriptions will not deliver what they promise.