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The Improving Labor Market May Be Worse than You Think

Last week’s unemployment report was good news for the economy, with the unemployment rate down 0.2 percent and payrolls remaining essentially flat. Brookings Senior Fellow Gary Burtless called the report "the best one we’ve seen in a long time." And while Burtless is right that the employment report was a welcome improvement, this good news should not obscure the fact that by some measures, we are in the midst of the worst employment environment since World War II.

The official unemployment rate—as measured by the Bureau of Labor and Statistics since the early 1940s—peaked at 10.8 percent during the 1981-82 recession, which is 0.6 percentage points higher than October’s unemployment rate of 10.2 percent. But simply comparing these two rates is not comparing “apples to apples” for the simple reason that the nation’s labor force has aged over the past few decades.

Unemployment rates tend to decrease with age: younger workers typically experience higher unemployment rates than older workers. For example, the October unemployment report showed 15.6 percent of workers aged 20 to 24 as being unemployed, compared to just 7.0 percent of workers aged 55 and older. The same trend was present in 1982.

In 2008, then-Brookings Senior Fellow Rebecca Blank testified to Congress that the “shifting age distribution of the civilian labor force” matters when analyzing unemployment. Blank argued that with the aging of the population, more workers are in age groups that typically have lower unemployment rates. That the aggregate unemployment rate is lower today than during the 1981-82 recession doesn’t necessarily mean that the labor force is better off, it just means it’s older. 

If the nation’s age distribution looked today as it did in December 1982, the October unemployment rate would be a staggering 11.4 percent; the highest rate since the Second World War. The adjusted November unemployment rate, controlling for the age of the workforce, is nearly as bad at 11.2 percent.

Hopefully the upcoming months will bring continued improvement in the labor market. But for now, it’s important to recognize the labor outlook for what it is: possibly the worst we’ve seen in at least 60 years.