Permission to reprint must be obtained in writing. “Why Is the U.S. Unemployment Rate So Much Lower?” In NBER Macroeconomics Annual 1998, eds. This Economic Letter focuses on two demographic factors that help explain the reduction in the unemployment rate over the past few decades. The resulting series is displayed in Figure 3 as the dotted line. Comparison of the two series across years is most informative when done at similar points in the business cycle. Unemployment rates vary substantially by educational attainment, with individuals lacking a high school degree on average experiencing unemployment rates that are three to five times greater than the rates experienced by individuals with a college degree or more (Figure 4; all ages). 1970. Although rising age and education made important contributions, they explain only about one-half or less of the decline in the unemployment rate over the past few decades. This publication is edited by Sam Zuckerman and Anita Todd. While the incorporation of education into demographic adjustments to the unemployment rate is not standard in the economics literature, our research findings support the inclusion of education over the period we examine, and its inclusion produces an overall adjustment that is within the numerical range of adjustments discussed in other work (see, for example, Shimer 1999). The twenty-year period between 1968 and 1988 was one of enormous expansion in the number of high-school and college graduates in the labor force. In a recent seminar, some interesting data was presented concerning these topics. As Figure 1 illustrates, younger groups generally have noticeably higher unemployment rates than older groups; indeed, the difference is most striking for teenagers (age 16-19), whose unemployment rate typically is about three or more times that of people aged 35 and over. By contrast, employment growth has remained sluggish and uneven well into the current expansion, and the decline in the unemployment rate has been correspondingly slow. Subscribe Indeed, prompted by the lengthy economic expansion of the 1990s, labor market conditions were unusually strong in 1999-2000. In addition, educational attainment has risen steadily since the mid-1970s: the labor force share of individuals who attended at least some college rose from 33 to 57 percent between 1976 and 2004, with a corresponding drop in the share of individuals possessing a high school degree or less (data not shown). San Francisco, CA 94120, © 2020 Federal Reserve Bank of San Francisco. “Changing Labor Markets and Inflation.” Brookings Papers on Economic Activity, pp. RSS Feed The first is the composition of the population by age group, and, in particular, the contribution of the aging of the “baby boom” generation to the long-term decline in the unemployment rate. Impacts of education are particularly large around 12 and 16 years of schooling. upper secondary education. The group breakdown used for this calculation relies on four age and four education groups, for a total of sixteen groups (with two excluded, due to the very low incidence of college experience for 16-19 year olds). The second is rising educational attainment among the population. The discussion borders much on graduate unemployment, this we take it to be tertiary education from the polytechnics through first to second degrees and others within the brackets. P.O. Figure 3 displays the official and age-adjusted unemployment rates as the two solid lines—the dotted line is a third series that is discussed below. The changing age structure of the labor force accounts for the difference between these two figures—0.5 percentage point, or just under 30 percent of the change in the actual unemployment rate. As a result of these differences in equilibrium unemployment rates by age, the movement of the large baby boom generation through the age distribution caused aggregate unemployment rates first to rise in the 1960s-1970s, when the share of young workers rose, and subsequently to fall, as the aging of the baby boom increased the labor force shares of prime-age workers, that is, those aged 35-54 (Figure 2). The resulting rise in the unemployment rates of less-educated individuals would reinforce the estimated decrease in aggregate unemployment arising from their declining labor force share, resulting in an overestimate of the contribution of rising educational attainment per se to declining unemployment rates. 1986. The gap between the two series reflects rising labor force shares for age groups with lower unemployment rates; this gap grew noticeably during the 1980s and then grew only a bit more during the 1990s. Box 7702 For example, teenagers constitute a disproportionate share of individuals with low educational attainment; therefore, an adjustment that accounts for the reduction in the labor force share of individuals lacking a high school degree will reflect in part the aging of the labor force that has reduced the share of teenagers. 11-61. Following a line of reasoning similar to that used for age adjustments, past research also has investigated the merits of adjusting the aggregate unemployment rate for rising educational attainment (e.g., Summers 1986). In this study, we analyze the role of education in providing protection from unemployment. Empirical tests conducted as part of this research indicated that, for the period we analyze, this assumption of independence between unemployment rates and labor-force shares is strongly violated when groups are defined by age or education alone, but for most years it is met quite closely when we divide the labor force by joint age and education groupings. 1999. During the recent economic crisis, the increase in the average unemployment rate for individuals without an upper secondary education was 1.1 percentage points higher than for those with at least an Research Highlights Education enhances re-employment outcomes of unemployed workers. Second, even if one accepts that adjusting the unemployment rate for rising educational attainment is conceptually reasonable, adding age and education adjustments together is likely to lead to an overstatement of their net effects, through “double counting” of age and cohort influences on educational attainment.

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