Sources of secular increases in the unemployment rate, 1969-82, (EXCERPT), Monthly Labor Review Online, July 1984

Sources of secular increases
in the unemployment rate, 1969-82

Michael Podursky

Since the late 1960's, the unemployment rate at the peak of economic expansions as well as at recession troughs has tended to rise over time. Was this upward drift primarily a result of the inflationary price shocks and macroeconomic turbulence of the 1970's, or were microeconomic labor market forces at work as well? What role did the strains associated with the absorption of a rapidly growing, young, and inexperienced labor force play? And, finally, what contribution did structural unemployment among adults make to this secular rise?

The relative importance of these and other contributing forces are the subject of debate among economists and are clearly of considerate importance for economic policy.¹ If, for example, the rising trend in the unemployment rate stemmed primarily from demographic factors, macroeconomic policy alone—if correctly administered—could reverse the trend in the coming decade as the labor force growth rate slows and the "baby boom" generation matures. However, if structural unemployment among adults was a major contributor, macroeconomic policy alone will not produce unemployment rates comparable with those of the 1960's—a rising economic tide will not raise all labor force boats.

This article examines in some detail the composition of peak-to-peak and trough-to-trough changes in the unemployment rate over the 1969-82 period. A statistical profile of the labor force segments that nudged the unemployment rate progressively higher over this period can provide some insight as to the relative importance of demographic and other factors in generating the upward trend and help us interpret the labor market experience of the 1970's.²

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Footnotes

1 Recent studies which have examined the unemployment experience during the 1970's include: Martin Neil Baily, ed., Workers, Jobs and Inflation (Washington, The Brookings Institution, 1982); James L. Medoff, "Imbalance, Wage Growth and Productivity in the 1970's" Brookings Papers on Economic Activity, vol. 1, 1983, pp. 87-128; David M. Lilien, "Sectoral Shifts and Cyclical Unemployment," Journal of Political Economy, August 1982, pp. 777-93; and Robert W. Bednarzik, "Layoffs and permanent job loss: workers' traits and cyclical patterns," Monthly Labor Review, September 1983, pp. 3-12.

2 Because the focus of this article is on changes in the structure of unemployment during the 1970's and early 1980's, the period of analysis begins with the expansion peak in the third quarter of 1969. It might be argued, however, that the unemployment rate in the late 1960's was artificially low due to the Vietnam War. As is shown below, the secular upward trend in the unemployment rate remains whether one begins with the 1969 or 1973 peak, or the 1970 trough. In any event, the long interval between 1969 and 1982 will be broken into peak-to-peak and trough-to-trough subintervals, thus providing a moving benchmark for the analysis.

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