Demographic, Supply, and Demand Forces Driving Unemployment Rates

Abstract

This paper presents a new way to look at monthly changes in unemployment rates using CPS data on the labor force. The percentage monthly change in the unemployment rate is expressed as the sum of three terms: (1) the amount due to growth in the population, which must be offset by growth in employment and nonparticipation if the unemployment rate is not to increase; (2) the amount due to changes in the size of the labor force; and (3) the amount due to changes in employment. Average values for these amounts are computed for recession and non-recession months from Febru- ary 1950 to December 1983. The results for teen- agers are consistent with the "baby boom" hypothe- sis about sources of trends in unemployment rates. However, because of their highly unstable patterns of employment and labor force participation, demo- graphic forces on unemployment rates are weaker for teenagers than for those 20 and older.