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This brief, part of the Urban Institute's "Recession and Recover" series, assesses how unemployment and household income changes as the economy moves through a recession and into recovery.
With many forecasting a long and deep recession, a
look back at how individuals and families fared leading
up to, during, and after the economic downturns of
the past 35 years could help policymakers deal with the
current economic crisis.
Dating the beginning and end of a recession requires
taking many factors into account, but one hallmark that
directly involves individuals and families is the unemployment
rate—the share of the civilian noninstitutionalized
population that wants work but cannot find it.
The U.S. unemployment rate stood at 6.7 percent in
November 2008 and is sure to climb in the coming
months (U.S. Bureau of Labor Statistics 2008). Unemployment
rates above 6 percent have been extremely
rare since the economic expansion of the 1990s accelerated
in 1995 (figure 1).1 Between 1995 and 2007, the
annual unemployment rate was below 6 percent in
every year except 2003. For the most part, workers
under the age of 40 have spent their entire working
lives in a relatively strong labor market.
But things were very different for older cohorts.
Americans in their mid-50s spent the first half of their
working lives negotiating some pretty tough labor markets.
Consider the years between 1974 and 1994. The
average unemployment rate topped 6 percent for 16 of
those years and 7 percent for 11 of them. During the
worst years, 1982 and 1983, the annual unemployment
rate exceeded 9 percent. When it dropped to 7.5 percent
in 1984, Americans celebrated the economic revival.
As figure 1 illustrates, unemployment rates begin to
rise rapidly at the start of a recession. During the
1974–75 and 1980–82 recessions, the unemployment
rate’s decline coincided with the end of the recession.
But the downturns of 1990–91 and 2001 saw unemployment
continue to climb even after the recessions ended,
declining only a year or more after the economy had
started growing again. It took about five years for the
unemployment rate to drop below its pre-recession levels
after the 1980–82 and 1990–91 recessions; the rate
never returned to its pre-recession levels during the
recoveries following the 1974–75 and 2001 recessions.
Thus, even if the current recession ends in 2009, we
may not see unemployment rates as low as 2007’s 4.6
percent for years to come.
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