Howard J. Wall

English

Research Papers in Economics

NationalEconomicTrends
December 2001
A Recession for the
Educated?
In September and October of 2000, the aggregate
unemployment rate bottomed out at 3.9 percent, having
fallen steadily from its June 1992 level of 7.8 percent.
This halving of the unemployment rate substantially
improved the employment opportunities for groups—
such as the less educated, teenagers, and blacks—that
historically have had the highest unemployment rates.1
With the steady softening of labor markets over the
past year—the unemployment rate hit 5.4 percent in
October 2001—the question arises as to whether these
traditionally disadvantaged groups have been bearing the
brunt of the economic downturn. After all, the anecdotal
evidence suggests that bad economic times hit these
groups hardest. Looking at the unemployment data across
education levels, however, it appears that, so far, it has
instead been the most-educated group whose recent
employment gains have eroded first.
Take 1994 as a reference point, a year during which
the aggregate unemployment rate fell below 6 percent,
which was thought by many at the time to be the natural
rate of unemployment. In that year, the average unemploy-
ment rates for college graduates, those with high school
diplomas but no college, and those without high school
diplomas were 2.6 percent, 5.3 percent, and 9.8 percent,
respectively. By September 2000, these rates had fallen to
1.9 percent, 3.4 percent, and 6.2 percent. Since then, as
the aggregate unemployment rate has risen, so have the
unemployment rates for these three educational categories.
The accompanying chart tracks the movement since
October 2000 in the three-month moving averages of the
unemployment rates for the three education levels, relative
to where those rates were in 1994. For the most-educated
group, those with college degrees, the unemployment
rate has already reached its 1994 level; for those with a
high school diploma but no college, about two-thirds of
the gap has already been closed. In contrast, for those
without a high school diploma, only about one-third of
the gap between current unemployment and 1994 unem-
ployment has been closed.  
At this early stage, it is not possible to explain why this
has been the case. One explanation is that this downturn
has simply hit those industries where the highly educated
are more likely to work. So far, the downturn has affected
the telecommunications, computer services, and airline
industries relatively more than traditional blue-collar
industries such as home construction and automobile
manufacturing. It is perhaps too early, however, to know
how unemployment is eventually going to be distributed:
job losses for the less educated might still be looming. It
is also possible that the extremely long expansion of the
1990s has enabled more of the less educated to weather
the storm because the long economic expansion enabled
them to gain the skills, experience, and seniority to make
it less likely for them to become unemployed now than
in the past.
—Howard J. Wall
1These trends are surveyed in William Poole and Howard J. Wall, “Price
Stability and the Rising Tide: How Low Inflation Lifts All Ships,” Federal
Reserve Bank of St. Louis, The Regional Economist, January 2000, pp. 5-9.
Views expressed do not necessarily reflect official positions of the Federal Reserve System.
www.stls.frb.org/research
–4.0
–3.0
–2.0
–1.0
0.0
Oct-00 Jan-01 Apr-01 Jul-01 Nov-01
College Graduates
Current Unemployment Rates Relative to 1994
SOURCE: Bureau of Labor Statistics.
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HS Diploma, No College
No HS Diploma

A recession for the educated?

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A recession for the educated?

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