Believe those who are seeking the truth. Doubt those who find it. Andre Gide

Monday, October 4, 2010

In Praise of Older Women

By all accounts, the U.S. employment picture looks bad. But what do we mean by "bad?" The most common way to demonstrate how bad it is, is via a diagram like this (source):

See also here. These displays take the level of employment at its cyclical peak and normalize it to zero. This is done for several earlier episodes, and then the evolution of employment is tracked from the onset of each recession. And, well, the current episode looks bad.

Diagrams like the one above are interesting. But I think they need to be read with some caution. You may not even know it, but the diagram has planted an idea in your head. The idea is that the data are stationary, and that reversion to the mean is desirable. It is sometimes useful to look at the broader picture; and this is what I propose to do here.

Here is a plot of the U.S. employment ratio (employment divided by population) over a longer horizon than is normally considered (1948-2010):

The first thing that should strike you is that the employment ratio does not appear to be stationary, at least, over this sample period. It seems to be roughly stationary in the first half of the sample, but then it grows steadily, reaching a peak in the late 1990s. Since that time, it has (arguably) been on a downward trend. It is possible that the recent cyclical decline is exacerbated by this downward trend (and may have contributed to the recent jobless recovery phenomena).

If the trend is indeed heading downward, in what sense should policymakers desire a return of employment to its earlier cyclical peak?  Do we know what the "natural" rate of employment is?

Perhaps the recent downward trend is not the only thing that needs explaining. We might also puzzle over the employment boom that seems to have begun in the mid 1970s. The following figure is revealing.

What we see here is that the employment ratio for men was in secular decline until the early 1980s. The employment ratio for women, in contrast, has been increasing steadily up until 2000. So the large increase in total employment is accounted for by female employment decisions. But since 2000, the employment ratio seems to be on a slow downward trend for both sexes, until falling sharply (again, for both sexes) in the recent recession.

Let me now slice the data up into finer categories. Here is the employment ratio for men by age:

What this suggests is that the secular decline in male employment early on in the sample was attributable largely to the employment choices of older men. The trend seems to have reversed itself some time in the early 1990s. Offsetting this rise is a decline in the employment of young men. The recent recession seems to have hit young men particularly hard; the employment ratio for older men hardly budged at all.

Here is what the employment ratio looks like for women across age groups:

What this suggests is that the recent secular decline in female employment is attributable largely to the behavior of young women (are all going to college?). But what I find very interesting here are the labor supply choices of older women.  In particular, their employment continued to expand even throughout the recent recession!

I am not sure what is driving this behavior. I do find it interesting, however, that a large negative aggregate demand shock seems not to have had much of an impact on the demand for goods and services produced in "old age" sector of the economy.


  1. David,

    I've been thinking about this on-and-off. I can only come up with one explanation as to why older men are working less and older women are working more. Older men, who have worked at one job for a long time, and find themselves out of a job may not have the skills required for the current workplace, or the desire to retrain themselves. This leaves their wives to pick up the slack. Older women may have less specific skill sets (cashier for example) or more in demand skills (say teaching or nursing) that allows them to more easily transition back to the workplace.

    I don't think what I have is a complete answer (by any measure) but I think that's part of what's going on.

    I wonder if we see this in other economies?

  2. David,

    OT but I think you would find this presentation from Niall Ferguson fascinating.

  3. Prof J: Thanks for the link to Ferguson's lecture (I will make it classroom reading material). But I can just imagine PK's reply: where's the inflation? I guess that the future will tell.

  4. You're probably right about PK. But last time I checked, all the money that the Fed had "created" was still parked in banks' reserves. I'm pretty sure money has to, you know, circulate, for price inflation to occur.