When the unemployment rate rises, it’s partly that more employed persons are losing their jobs and partly that fewer unemployed persons are finding jobs. Although there’s no consensus on which is more important, some research finds that the flow of persons from unemployment into employment accounts for the lion’s share of changes in the unemployment rate. These unemployment-to-employment flows are cyclical and fell starkly in the Great Recession, as the graph above shows. Persons may also flow from outside the labor force (neither employed nor unemployed) directly into employment; this is also an indicator of the ease or difficulty of getting a job. This flow from “nonparticipation” to employment is expected: Some persons who’d like a job aren’t formally searching and so aren’t counted in the BLS measurement of unemployment. There are also new entrants into the workforce, such as recent graduates and parents returning after a hiatus for child care. The flow from nonparticipation into employment (that is, the proportion of nonparticipants taking a job) is much lower than the flow from unemployment to employment (graph above), but the two series track each other nearly perfectly in their cyclical fluctuations (graph below).
How these graphs were created: Search for Labor Force Flows and select the (seasonally adjusted) “Unemployed to Employed” and “Not in Labor Force to Employed” series and add them to the graph. Then in the “Add a Data Series” section, search for “Unemployed” (monthly, thousands of persons, seasonally adjusted) and select “Modify existing series” for series 1. Repeat these steps with “Not in Labor Force” for series 2. For both series, in the “Create your own data transformation” section, apply the formula a/b. Start with the first graph to create the second, but change the y-axis of series 2 from left to right. Note: These measures of the rates of flow aren’t precise because of “time aggregation bias”: That is, these measures compare employment status at two points in time (the beginning and the end of the period), but they don’t take into account any changes in employment that may have occurred between those two points.
Suggested by David Wiczer.
View on FRED, series used in this post: