Workers returned to the labor market as employment opportunities expanded

See Snapshots archive.

Snapshot for January 24, 2007.

Workers returned to the labor market as employment opportunities expanded

by Sylvia Allegretto with data assistance from Jin Dai

Many have speculated on why the share of the population employed (i.e., the employment rate) continued to decline long into the recovery that followed the 2001 recession. Were these declines a reflection of prolonged weak labor demand, or in other words, a bad economy for workers? Or, did they instead reflect demographic trends and changing preferences for work? We can see, using the five full years of post-recessionary data now available, that employment was, in fact, subpar due to a weak economy. This conclusion is supported by the fact that employment rates, which some thought were at the demographically set peaks, have risen sharply in response to job growth and falling unemployment in 2006.

The following chart focuses on the employment rates of young college graduates*, a group that always exhibits high employment rates, and compares them to the overall unemployment rates of 25-34 year olds.

The picture suggests that employment rates have primarily moved up and down in response to the trends in unemployment, and that the lower employment rates in recent years reflected a weak economy for workers. For instance, the employment rate for these young college graduates fell from 87.6% in 2000 to 84.4% in 2003. This disappointing employment situation clearly did not reflect the preferences of these workers since the employment rate jumped 2.2 percentage points to 86.6% in 2006 as unemployment continued to fall. 

* "Young college graduates" are defined as 25-to-34 years olds with at least a bachelor's degree.