Workers have already left during the recession

During the period of a recession, many workers will exit the labor force. This phenomenon has been observed often. But what workers are most likely to exit the labor force during recessions? And what do they do after exiting the workforce?

In her essay, “Labor force exiters around recessions: who are they?” (Federal Reserve Bank of St. Louis Review, first quarter 2023), author Victoria Gregory analyzes labor force data from the Great Recession and the recession of the coronavirus disease 2019 (COVID-19) pandemic. In doing so, she examines the differences in labor force dynamics between these recessions by considering patterns in labor force entry and exit. Gregory uses these patterns of job separators to determine whether each recession set of “exiters” would likely be reemployed 1 year later. To better understand the differences in exit patterns, she looked at the workers’ chance of being reemployed and their composition, such as gender, education, and age.

After separating from their jobs, exiters had several paths from which to choose. Some returned to their former job, whereas others found a new job. Some individuals spent much of their time looking for a new job and others exited the labor force entirely. Gregory observed that the labor force participation rate of both the Great Recession and the COVID-19 pandemic recession declined substantially.

Gregory’s analysis of labor force patterns is based on monthly data from the Current Population Survey (CPS). Because the CPS surveys households for 4 consecutive months, skips 8 months, and then surveys for another 4 months, it is an ideal panel structure for Gregory’s analysis. After dividing workers who lost their jobs into two groups by recession (Great and pandemic), the author again divides each group into three on the basis of the individuals’ status at the end of their time in the CPS sample: exiters (left the labor force), nonexiters (did not leave the labor force but were unemployed), and reemployed (lost their jobs and found employment again).