We have news coming out of the Department of Labor this morning that jobless claims dropped again last week.  This is good news, but while the unemployment rate is declining, it is doing so at a very slow pace.  This is somewhat different from some past recoveries.  And Erica Groshen, a VP at the Federal Reserve Bank of New York, points out one possible factor: temporary unemployment.  Take a look at the percentage of overall job losses that temporary unemployment made up for recessions from 1973-1981compared to the Great Recession (as shared by Groshen on the New York Fed's Liberty Street Economics blog):

Groshen writes:

During the last three downturns, temporary layoffs clearly played a much smaller role in the total rise in joblessness. I show three different bars because the beginnings and ends of recessions can be dated in different ways: official National Bureau of Economic Research (NBER) dates, unemployment rate peaks and troughs, and temporary layoff troughs close to unemployment rate troughs. Any way you measure it, temporary layoffs accounted for much less of the peak-to-trough increase in joblessness during the 2007 recession than they did in downturns before 1990.

In our Current Issues article on the 2001 recession, Simon Potter and I offer two explanations for the switch away from temporary layoffs. The first focuses on modern personnel practices, such as lean staffing. Here, firms use recessions as opportunities to cull their workforces, close inefficient facilities, or make other fundamental changes. Rather than just “weathering the storm,” they try to emerge stronger. The second explanation notes that shallow, short recessions may have less cyclical “collateral damage.” That is, the impact of a mild recession may be highly concentrated in firms and industries that need to change, with little impact on fundamentally healthy firms or industries. If healthy employers prefer temporary layoffs (because they want their workers back when conditions improve), then a mild, short recession would lead to proportionally fewer temporary layoffs.

In the 2001 recession, the new personnel practices were prevalent, but the downturn was not deep or long. So, in our article, we couldn’t tell which explanation was correct. However, the fact that the severe Great Recession did not cause a big spike in temporary layoffs suggests that new behavior patterns of employers are likely to be an important explanation.

Read Temporary Layoffs during the Great Recession here.