Author: Llad Phillips

Uncertainty continues about the economy and especially the labor and housing market. In this blog we examine the total number of unemployed in California. At its peak in the first quarter of 2010, the number of unemployed reached 2, 340, 000. The California Department of Finance predicts a decline in these numbers in the five quarters ahead. In this blog we show that the California labor market has been slow to recover in recent recessions. The UCSB Economic Forecast Project is using its blog on the home page http://www.ucsb-efp.com/ to provide updates like this current topic on a regular basis.

The fraction of the population in California that is in the labor force, i.e. employed or unemployed, provides insight into labor market trends in our state. This information is also available for the Los Angeles-Long Beach-Glendale Metropolitan Division, but not for the city of Santa Barbara.

The civilian non-institutional population, ages sixteen and older, is composed of individuals not in the armed forces, or jail, prison, or hospitals. The US Department of Labor obtains estimates of this population from the US Census Bureau, and on the basis of surveys, classifies this population as in the labor force or not in the labor force. Those in the labor force are classified as employed or unemployed. The labor force participation rate is defined as the percent of the civilian non-institutional population in the labor force. A discussion of these definitions and the data is available at http://www.bls.gov/lau/rdscnp16.htm#.

I used the monthly data, not seasonally adjusted, for California and for Los Angeles. A figure of these two time series follows from January 1976 through June 2011. The shaded areas in this plot are the recessions, with the timing determined by the National Bureau of Economic Research. Note that the participation rate for California climbs until 1990, is still at a level of about 67% in 2000-01, and was still at a level 0f 65.5 to 66 % in 2007 before the Great Recession.. In the first six months of 2011, it is between 63 to 63.5 %. So since 1990, a smaller fraction of the population in California has been participating in the labor force.

The pattern for Los Angeles is similar with perhaps a more pronounced difference between peaks and troughs..

Civilian Non-Instutional Population and Employment in California

There have been at least three distinct periods of population growth in California since 1976. The first is the fourteen years from 1976 though 1989, when the growth rate was 2.2 percent per year. Remarkably, during this period, employment grew even more rapidly at 2.8 per cent per year. This behavior is exhibited in the following graph.

There was a turning point in 1990, the beginning of the second distinct period of population growth. First the population estimates caught up with the census. Second, during the years 1990-1995, the growth rate of population dropped to 0.8 percent. Employment did not grow at all for these six years, clearly affected by the 1990-91 recession. Note that following the 1980 and 1981-82 recession, employment did not grow for three years. So during and following the five recessions illustrated by shaded areas in the graph, including the most recent Great Recession, employment did not grow.

Beginning in 1996, population growth recovered, but only to1.3 percent per year, no where near as rapidly as before 1990. Employment began to grow again as well in 1996 until the recession 0f 2001.

The impact of recessions on employment in California as a fraction of the Civilian Non-Institutional Population is illustrated in the following graph. The ratio of employment to population reached 64 percent in the period 1987 through 1990 and again in 2000, indicating the potential for employment in those periods. However, since 2000, employment has not kept pace with population growth, and the Great Recession has caused this ratio to plunge back to the levels of 1976. Given that it took six years for employment to begin to grow again after the recession in 1990, it may be an even longer wait for employment to recover after the impact of the Great Recession.

Unemployment is not measured as meaningfully as employment since discouraged persons may stop looking for work and not be counted, or accept a part-time job and be underemployed. The following graph, using annual data, shows the number of unemployed as a fraction of the civilian non-institutional population. This differs from the often reported unemployment rate which is the fraction of the labor force that is unemployed. The measure graphed here is the product of the civilian labor force participation rate, as illustrated in the first graph above, and the unemployment rate. As this figure illustrates, 1987-1990, 1998-2001, and 2005-2007 were good labor market years in California when this ratio dropped below 4 percent. These were years when employment in California was growing, as illustrated in the second figure in this paper, above.

Note there is an eight to nine year cycle in this annual data for unemployment as a fraction of the civilian non-institutional population (the unemployment ratio) indicating influences more complex than the business cycle.

The California Department of Finance makes quarterly forecasts of the number of unemployed in California, so a forecast of quarterly data for the unemployment ratio was undertaken by the UCSB Forecast Project. This forecast was multiplied by a forecast of the civilian non-institutional population to obtain a forecast of the total number of unemployed in California for the fourth quarter of this year and for next year. This forecast is illustrated in the next graph.

The number of workers unemployed in Calfornia is falling , but slowly. At the current rate of recovery. It could be 2016 before good times for workers returns.

The following table compares the forecast of the number unemployed in California estimated by the Department of Finance to the Forecast Project estimates.

Forecasts of the Number Unemployed in California

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