Chart of the Day: How the Unemployed Got That Way

News articles commonly refer to the nearly 14 million unemployed Americans as having been laid off as companies downsized. That's actually an exaggeration. Just over 50% of the Americans that the government considers unemployed hold that status due to being fired from a permanent job. Let's look at how the various causes for unemployment have changed in the U.S. since 2007.

Here's a chart that shows the percentage of all unemployed Americans for the five categories of unemployed Americans that the Bureau of Labor Statistics tracks:

unemployment how 2011-07.png

As you can see, layoffs do dominate the chart (red line) as the chief cause of unemployment. In fact, that reason has risen in significance from just 34.0% in January 2007 to peak 54.1% in November 2009. It has since begun to decline a little, now settling just above 50%. Unfortunately, this isn't entirely due to these Americans finding work. Some are leaving the workforce and no longer considered among the unemployed.

The next most significant group is reentrants (gold line). But its portion of the total has declined since the recession began. This makes sense, since layoffs rose. You can see, however, that the portion of reentrants has begun to increase recently. As the economy appeared to be improving earlier this year, more Americans reentered the labor market to look for work. Of course, it should be noted that some people in this group may have been laid off in the past, which means that the job losers shown probably underestimates the number of Americans who are ultimately unemployed due to layoffs.

The portion of people who are jobless due to a temporary job ending (purple line) has also declined since the recession began -- for the same reason that we've seen a decline in reentrants. Layoffs came to dominate. As the labor market began to improve in 2010, however, we saw temp jobs begin to increase. Interestingly, however, we haven't seen any increase in unemployed Americans who saw those temp jobs end. Perhaps the additional new temp jobs are more than making up for those that are ending.

The path of new entrants (blue line) is pretty interesting. That number was steady around 9% as the recession began. But when the job market deteriorated, it began to decline. Those new entrants probably just stayed out of the job market for a while, until hiring improved. When things began to get a little better in 2010, we also saw this portion rise, up to nearly 10% earlier this year.

Finally, you can see pretty clearly that the recession has led to fewer workers risking prolonged unemployment by quitting their jobs (green line). This portion of the total has declined dramatically, from more than 11% in early 2007 to below 6% in late 2010. Of course, this makes sense. Unless you're utterly certain of your superior marketability as a job applicant, quitting your job during a severe recession is a pretty gutsy move.