Analyzing CPS Data

10 Monthly Labor Review September 2005

Analyzing CPS Data

Randy Ilg

is an economist

in the Division of

Labor Force Statistics,

Bureau of Labor

Statistics.

E-mail:

Ilg.Randy@bls.gov

Improved gross flow data provide

the necessary linkage between stocks and flows;

therefore, they may prove useful in analyzing

movements in labor force measures

Analyzing CPS data

using gross flows

Randy Ilg Each month, the Bureau of Labor Statistics

(BLS) publishes estimates of employment

and unemployment derived from the Current Population Survey (CPS). These measures

are highly scrutinized by business economists,

policy analysts, and financial investors for information about the state of the labor market.

The published labor force data show the net

change in the number of employed or unemployed persons (the stocks) over any given time

period. The specific sources of the net change,

however, are not discernible from the published

data because there is a significant amount of

“churning” as individuals move from one labor

force status to another. These dynamic “gross

flows” underlie the net changes in the labor force

measures. Researchers from the BLS Office of

Employment and Unemployment Statistics recently developed several new seasonally-adjusted

gross-flow series. The improved gross flow data

provide the necessary linkage between stocks and

flows and, therefore, may prove useful in analyzing movements in labor force measures.

This article provides some background and

conceptual information on the new gross-flow

series. (A more complete description is provided

in an accompanying article in this issue.1

) In addition, it demonstrates some uses of the grossflow series by examining changes in various labor force stock measures and reconciling those

movements with the seasonally adjusted grossflow series over selected time periods.

The gross-flow data presented in this article

support information collected in other BLS surveys; during the recession, flows out of employment were greater than flows into employment.2

 Indeed, the decline in the employmentpopulation ratio during the past two labor market downturns reflected increased flows out of

employment, rather than reduced flows into

employment. The data also show that the jobless rate appeared to be more sensitive to the

pace of rising or declining flows into unemployment, rather than to changes in the level

of flows out of unemployment.

Gross-flow measures

Each month, the CPS is administered to about

three-quarters of the same households (sample)

as in the previous month.3 This month-to-month

overlap allows for the calculation of “flows” in

labor force status from one month to the next.

However, while all eight “rotation” groups in the

CPS are represented in the stock data, only six are

represented in the flow data.4 Moreover, some of

the flows involve movements into or out of the

survey scope. While these flows contribute to

the change in stock measures, they are not captured in the sample overlap. Thus, the sum of the

flows does not match the change in the stock estimates. Due to these discrepancies between the

flows and changes in the monthly labor force

measures (stocks), BLS has not published grossflow data on a continuous basis since 1952, other

than periodically in some research.5

 Despite such

limitations, however, gross-flow data have been

shown to provide useful information in analyzing short-term labor force developments.6
Monthly Labor Review September 2005 11

The newly-developed gross-flows series have been adjusted to account for the discrepancies outlined above so that

they closely correspond to the labor force stocks.7 This

“matching” property greatly aids in the comparative analysis

of changes in the stock estimates of employment, unemployment, and persons not in the labor force. In addition, the new

gross-flow series have been seasonally adjusted to allow for

month-to-month types of analyses.

Types of flows. The nine labor force flows are discussed in

more detail below.

Status in current month

Employed ......... EE EU EN

Unemployed ..... UE UU UN

Not in the

labor force ....... NE NU NN

Flows into employment. For simplicity, the flows into employment are represented by EE, UE, and NE. EE represents all

individuals who remained employed from last month to the

current month. UE reflects the number of unemployed persons who became employed. NE represents the transition from

not in the labor force last month into employment this month.

Flows into unemployment. The flows into unemployment are

represented by EU, UU, and NU. EU represents the total transitions from employment last month into unemployment this

month; those transitions could include quits, terminations, and

layoffs. UU represents all individuals who remained unemployed from month to month. The transition from not in the

labor force last month into unemployment this month (NU)

represents reentrants and new entrants to the labor force.

Flows into not in the labor force. The total transitions from

employment last month into not in the labor force this month

(EN) could include retirements as well as completed spells of

seasonal employment. It also could represent persons who

lost their jobs and left the labor force, rather than seek other

employment. UN represents the total transitions from unemployment into not in the labor force. Reasons for such transitions would include, but are not limited to, discouragement

over job prospects.8 NN represents all persons who continue

in a not-in-a-labor-force state, for reasons such as retirement,

school, disability, family responsibilities, or discouragement.

This article focuses primarily on the six flows where labor

force status changed, rather than on the flows (represented as

EE, UU, and NN), where labor force status continued in the

same state. (UU flows, however, do provide a measure of persistence of unemployment and will be briefly discussed.)

As described in the article by Duff and colleagues in this

issue, BLS statisticians have developed a method that forces

mathematical reconciliation between the gross flows and stock

estimates. Adjustments also are made to the “core” flows (as

presented in the illustration above) for persons flowing in

scope and out of scope between months for each of the labor

force categories. These adjustments expand the 3X3 core

matrix to account for persons who just turned 16 years of age,

for persons who immigrated, and for standardized death rates.

Clearly, there are constant inflows to employment from out of

scope (due to increasing population), so employment stock

would increase even in the absence of net inflows in the 3X3

matrix; it simply would increase at a faster pace when employment within the 3X3 matrix is net positive. Due to their

marginal influence in analyzing short-term changes to labor

force estimates, however, such adjustments are not discussed

in more detail in this article.9

Recent developments tied to gross flows

Discussion in this section focuses on the stock changes in

labor force measures during the 2001 recession and its aftermath, with comparisons to the recession of the early 1990s.

When linking these changes in stock data to the gross-flow

series, it is worth noting that the gross-flow data can be

viewed from two different perspectives. The primary focus

here is to view the data from the current month’s perspective;

that is, from which labor force status individuals came. Thus,

we can use gross-flow data to help determine what contributed to the stock changes in employment, unemployment, and

not in the labor force over selected time periods. The discussion also touches upon what happens to unemployed individuals in any particular labor force status in the next month.

This latter perspective addresses the likelihood of unemployed individuals finding employment, remaining unemployed, or leaving the labor force.

Changes in employment. Following a long-term period of

employment growth from 1991 through 2000, employment

declined in 2001. In 2002, employment growth was rather

tepid, but increased substantially again in 2003 and 2004.10

The employment-population ratio—that is, the proportion of

the population that is employed—peaked at 64.7 percent in

April 2000 and trended downward until the end of 2001.

Throughout most of 2002, the ratio showed little movement

until late in the year and then continued to trend down again

until mid-2003. From mid-2003 until mid-2004, the ratio

remained in a fairly narrow range of 62.1 to 62.3 percent,

even as employment rose sharply.11 The ratio finally began

Status in

prior month Employed Unemployed Not in the

labor force
Analyzing CPS Data

12 Monthly Labor Review September 2005

to drift upward only in the last half of 2004. How would

these trends look when analyzed with gross-flow data?

Chart 1 presents the flows in and out of employment as a

percent of the population from March 1990 through December 2004, seasonally-adjusted 3-month-moving averages.12

Recall that UE plus NE represent inflows to employment, while

EU plus EN represent outflows from employment.

Beginning in 2000, flows out of employment as a share of

the population began trending up, and in 2001, outflows accelerated and rose sharply. Outflows from employment as a

share of the population peaked above 2.8 percent in mid-2001.

While flows into employment also increased somewhat, outflows were consistently and substantially higher throughout

the year. Disaggregating the outflows into the two components shows that the employment decline in 2001 was associated with relatively high flows out of employment into not in

the labor force (EN), but also into unemployment (EU). As a

result, the employment-population ratio fell by 1.5 percentage points.

From the beginning of 2002 through mid-2003, the difference between inflows and outflows lessened. Both flows

trended down from their highs in 2001, although outflows

tended to fluctuate more widely. Since mid-2003, flows into

employment have exceeded outflows. However, there seemed

to have been a time lag between when inflows exceeded outflows and when the employment-population ratio began to

rise. The ratio began to drift upward in the latter half of 2004,

only after a considerable time period during which flows into

employment were sufficiently larger than outflows.

During the early 1990s, the employment-population ratio

peaked at 63.2 percent in the first quarter of 1990 then declined by 2 full percentage points by the end of 1991. (The

National Bureau of Economic Research designated the period from July 1990-March 1991 as a recession. However,

many labor market measures showed little, if any, growth for

several months following the official end of the recession.)

As shown in chart 1, there also were relatively large flows out

of employment into the other labor status categories during

this period, a scenario quite similar to that in 2001. In the

intervening years between these periods of labor market weakness, inflows into employment nearly always exceeded outflows, resulting in a steady rise in the employment-population ratio.

Looking more closely at the flows into employment, persons from outside the labor force (NE) have usually contributed a larger share of employment growth than have the unemployed (UE). Over the last 4 years in particular, individuals from outside the labor force contributed an even larger

Chart 1. Employment flows as a percent of the population, May 1990–December 2004,

seasonally-adjusted 3-month-moving averages

Percent Percent

March

NOTE: Shaded areas represent recessions.

1990 91 92 93 94 95 96 97 98 99 2000 01 02 03 04

2.0

2.1

2.2

2.3

2.4

2.5

2.6

2.7

2.8

2.9

3.0

2.0

2.1

2.2

2.3

2.4

2.5

2.6

2.7

2.8

2.9

3.0

Inflows

Outflows
Monthly Labor Review September 2005 13

share than they did during the early 1990s, or even the majority of the 90s overall. In contrast, a larger proportion of employment came from the ranks of the unemployed during the

early 1990s than during the recent downturn. (See chart 2.)

Changes in unemployment. In and around recessionary periods, the unemployment rate receives ample attention from

economists and policymakers because it is viewed as a barometer of the economy’s health. The recent economic downturn was no exception. The unemployment rate rose to a high

of 6.3 percent in June 2003, from 3.9 percent in December

2000. From that peak, the jobless rate trended down to 5.6

percent by mid-2004. Throughout the remainder of the year,

it was either 5.5 or 5.4 percent.

Chart 3 presents the flows in and out of unemployment

as a percent of the labor force from March 1990 through

December 2004, again using seasonally-adjusted 3-monthmoving averages. EU plus NU represent inflows into unemployment, while UE plus UN represent outflows from

unemployment. The chart also includes the series history

of UU, the share of the labor force who remained unemployed from one month to the next. In addition, the chart

illustrates the share of the labor force comprised of persons who have been unemployed for 27 weeks and longer,

thereby providing some comparison of the extent of longterm unemployment.

During the rapid economic expansion of the second half

of the 1990s and most of 2000, the share of the labor force

comprised of flows into and out of unemployment trended

down, with outflows slightly exceeding inflows. As a result, the unemployment rate declined over this period. Beginning in 2001, however, both flows into and out of unemployment swelled, with inflows rising faster than outflows. The unemployment rate rose accordingly. Since

about mid-2003, flows into unemployment have declined

at a faster pace than outflows, and the unemployment rate

has trended down. The pattern during the early 1990s was

quite similar. The jobless rate was driven upward when

inflows rose faster than outflows. Conversely, it descended when inflows into unemployment receded at a

faster pace than exits.

During economic downturns, the number of persons who

remain unemployed from month to month (UU) far exceeds

other transitions to and from unemployment. The share of the

labor force made up of persons who remained unemployed

from month to month rose to nearly 3.5 percent in the aftermath of the recent recession and reached more than 4.5 percent during the early 1990s. The unemployed also remained

Chart 2. Share of employment provided from unemployment and not in the labor force, May 1990–

December 2004, seasonally-adjusted 3-month-moving averages

Percent Percent

March

NOTE: Shaded areas represent recessions.

1990 91 92 93 94 95 96 97 98 99 2000 01 02 03 04

0.0

0.5

1.0

1.5

2.0

2.5

3.0

0.0

0.5

1.0

1.5

2.0

2.5

3.0

From outside the labor force (NE)

From the unemployed (UE)
Analyzing CPS Data

14 Monthly Labor Review September 2005

unemployed even longer during these periods. Thus, the overall rise in the unemployment rate reflected to a large degree

an increased likelihood of remaining unemployed, as well as

a somewhat higher likelihood of becoming unemployed. In

the aftermath of the recent downturn, the share of the labor

force that was unemployed for 27 weeks and more not only

rose but sustained that level for an extended time period. As

of December 2004, unemployed persons who had been unemployed for 27 weeks and more exceeded 1 percent of the

labor force for 33 consecutive months.

Not in the labor force. There is a fair amount of “churning”

going on in the labor market during any given point in the

business cycle. As more individuals move from one labor

force status to another, it is more pronounced. Beginning in

2001, flows from employment increased, as shown in chart

1. In addition, flows in and out of the not in the labor force

category also rose, as shown in chart 4. Indeed, both the

flows of employment into not in the labor force (EN) and vice

versa (NE) were higher than historical levels. (See charts 2

and 5.) One similarity between the most recent recession

and that of the early 1990s was the relatively high and sustained level of transition from unemployment into not in the

labor force (UN). During periods of labor market weakness,

more unemployed individuals opt out of the labor force (for

various reasons, including discouragement over job prospects). (See chart 5.)

A closer look at unemployment

While gross flows provide useful information with regard to

labor force behavior in and around recessions, they also are

practical for assessing shorter-term changes in stock measures.

For example, a closer examination of unemployment for 2003

provides a stark contrast between the first and second half of

the year.13 (See tabulation below.)

Uunemployment changes in 2003

January-June June-December

Unemployment .... +744,000 –829,000

Unemployment

rate ..................... +0.5 –0.6

As previously noted, employment increased substantially in

2003. In the first half of 2003, however, the number of unemployed persons and the unemployment rate rose; both measures declined in the second half of the year.

Chart 3. Unemployment flows and duration as a percent of the labor force, May 1990–

December 2004, seasonally-adjusted 3-month-moving averages Percent Percent

NOTE: Shaded areas represent recessions.

March

1990 91 92 93 94 95 96 97 98 99 2000 01 02 03 04

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

Outflows

Remained unemployed (UU)

Long-term unemployed

Inflows
Monthly Labor Review September 2005 15

Chart 4. Not in the labor force flows as a percent of the population, May 1990–December 2004,

seasonally-adjusted 3-month-moving averages

Percent Percent

NOTE: Shaded areas represent recessions. March

Chart 5. Share of not in the labor force provided by employment and unemployment, May 1990–

December 2004, seasonally-adjusted 3-month-moving averages

Percent Percent

March NOTE: Shaded areas represent recessions.

1990 91 92 93 94 95 96 97 98 99 2000 01 02 03 04

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

Employed into not in the labor force (EN)

Unemployed into not in the labor force (UN)

1990 91 92 93 94 95 96 97 98 99 2000 01 02 03 04

2.0

2.1

2.2

2.3

2.4

2.5

2.6

2.7

2.8

2.9

3.0

2.0

2.1

2.2

2.3

2.4

2.5

2.6

2.7

2.8

2.9

3.0

Inflows

Outflows
Analyzing CPS Data

16 Monthly Labor Review September 2005

As shown in table 1, the average inflows into unemployment from both employment (EU) and not in the labor force

(NU) were substantially smaller during the second half of 2003

compared with the first half. Conversely, average outflows

into both employment (UE) and not in the labor force (UN)

were considerably larger during the second half of the year.

The combination of reduced flows into unemployment and

increased outflows ((EU+NU)–(UE+UN)) resulted in a large net

stock decline in unemployment during the second half of the

year, thus offsetting rising unemployment during the first part

of the year.

The average monthly increase in UE and decrease in EU

reflect improvements in the labor market to some extent.

More unemployed workers found jobs, and fewer employed

individuals became unemployed. Other flows, however, may

not provide an unambiguous view of an improving labor market. More unemployed individuals quit searching for work

(UN), and fewer individuals began a search (NU). We do not

know the extent to which those decisions are independent of

labor market conditions. The decrease in NU could reflect

the possibility that entrants to the labor force were more successful in finding employment or that fewer individuals attempted a job search because they viewed their prospects as

poor.

What happens to the unemployed? As previously mentioned, gross-flow data can provide information from different perspectives. Having examined where individuals

in various labor force categories came from, focus now

switches to what happens to individuals in a particular labor force status, specifically unemployment. This latter

assessment (using total unemployment as the base) sheds

some light concerning the likelihood of individuals leaving their current state of unemployment and finding employment, remaining unemployed, or leaving the labor

force. (See chart 6.)

As might be expected, unemployed individuals were less

likely to find employment (UE) and more likely to stay unemployed (UU) in each of the last two recessions than during the

intervening period of economic expansion. In the aftermath

of the most recent recession, the likelihood of remaining unemployed was slightly lower (better) than during the deeper

recessionary period of the early 1990s, although the prospect for finding employment (UE) was about the same. There

was a greater likelihood that the unemployed would exit the

labor force (UN) altogether in recent years compared with

the early 1990s.

IN SUM, gross-flow data can provide additional insight into

changes in stock labor force estimates. During the last

two recessionary periods, employment declines were

linked to increased flows out of employment, rather than

reduced flows into employment. In addition, the jobless

rate appears to be more sensitive to the pace of rising or

declining flows into unemployment, rather than exits from

unemployment. Finally, in the aftermath of the recent recession, there was a relatively high degree of “churning”

as employed persons exited the labor market and new individuals entered. At the same time, an increasing number of unemployed individuals opted out of the labor force.

February ..................................... 1,902 2,003 1,970 1,795

March ......................................... 1,933 1,950 2,033 2,016

April ............................................ 2,003 2,120 2,067 1,744

May ............................................ 2,022 2,031 2,059 1,901

June ........................................... 1,973 2,262 2,115 1,847

July ............................................. 1,910 1,942 2,095 1,983

August ........................................ 2,046 1,994 2,150 2,015

September .................................. 1,952 2,035 2,036 1,920

October ...................................... 1,764 2,123 2,120 1,991

November ................................... 1,808 2,039 2,123 1,847

December................................... 2,011 1,933 2,306 1,913

February-June average .............. 1,967 2,073 2,049 1,861

July-December average ............. 1,915 2,011 2,138 1,945

Table 1. Monthly flows to and from unemployment and average flows for selected months in 2003,

seasonally adjusted

[Numbers in thousands]

Month

Flows into unemployment Flows out of unemployment

Not in the labor force

to unemployed (NU)

Employed to

unemployed (EU)

NOTE: Flows of unemployment are based on the current month. Thus, the flows from employment to unemployment shown in column 2, for example,

reflect a portion of the stock change in unemployment due to transitions from employment over the January-February period.

Unemployed to not

 in the labor force (UN)

Unemployed to

employed (UE)
Monthly Labor Review September 2005 17

Whether these trends reflect the changing labor market

conditions, individual preferences, or both cannot be determined from the gross-flow data but certainly warrants

further research.

By itself, the unemployment rate has proven to be a historically good indicator of slack in the labor market. As a

single measure, however, the unemployment rate does not

Chart 6. Likelihood of the unemployed finding employment, remaining unemployed, or leaving

the labor force, May 1990–December 2004, seasonally-adjusted 3-month-moving averages

Percent Percent

NOTE: Shaded areas represent recessions.

March

1990 91 92 93 94 95 96 97 98 99 2000 01 02 03 04

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

Into unemployment (UU)

Into not in the labor force (UN)

Into employment (UE)

provide a complete picture of general labor market conditions.

For many years, BLS researchers have strived to produce other

tools, including a set of alternative measures of labor

underutilization. The new seasonally adjusted gross-flow series presented in this article offer one more tool in an ongoing

endeavor to provide useful information to data users and

policymakers.

Notes

ACKNOWLEDGMENT: The author would like to thank Anne Polivka, Harley

Frazis, James Spletzer, and Fran Horvath for their contributions.

1

 See Harley J. Frazis, Edwin L. Robison, Thomas D. Evans, and

Martha A. Duff, “Estimating gross flows consistent with stocks in the

CPS,” pp. 3–9, for additional information on methodology, measurement concepts, limitations, and seasonal adjustment.

2

 For example, data collected in the Bureau’s Business Employment

Dynamics (BED) program showed that substantial increases in gross job

losses were accompanied by declining gross job gains during the recent

recession.

3

 The Current Population Survey (CPS) is a scientifically-selected sample

survey of about 60,000 households conducted each month by the Bureau of

the Census. For an explanation of the survey’s coverage and concepts, see

“Explanatory Notes and Estimates of Error,” Employment and Earnings,

January 2005, pp. 267–86.

4

 Part of the CPS sample is changed each month. Each monthly sample is

divided into eight representative subsamples or rotation groups. A given

rotation group is interviewed for a total of 8 months, divided into two equal

periods. It is in the sample for 4 consecutive months, leaves the sample

during the following 8 months, and then returns for another 4 consecutive

months. In each monthly sample, one of the eight rotation groups is in the

first month of enumeration, another rotation group is in the second month,

and so on. Under this system, 75 percent of the sample is common from

month to month, and 50 percent is common from year to year for the same

month. This procedure provides a substantial amount of month-to-month

and year-to-year overlap in the sample.
Analyzing CPS Data

18 Monthly Labor Review September 2005

5

 Gross flow data have been tabulated and used on occasion by BLS

analysts who were knowledgeable about the data’s limitations. For

example, see “Gross Flow Data From the Current Population Survey,

1970-80,” U.S. Department of Labor, Bureau of Labor Statistics, March

1982.

6

 For example, see Anthony J. Barkume and Francis W. Horvath, “Using

gross flows to explore movements in the labor force,” Monthly Labor Review, April 1995, pp. 28–35.

7

 See Frazis et al, “Estimating gross flows...”

8

 In the CPS, discouraged workers are individuals who want and are available for a job and who have looked for work sometime in the past 12 months,

but who are not currently looking for work specifically because they believe

that no jobs are available for them.

9

 The adjustments account for persons who just turned 16, for persons who immigrated, and for standardized death rates. The sum of

the control totals for the prior month will then equal the sum of the

control totals for the current month. This article essentially ignores

these in-scope and out-of-scope flows because of their marginal contribution. For more information on these adjustments, see Frazis et al,

“Estimating gross flows...”

10 Population adjustments to the household survey had some impact on

employment estimates. The comparability of historical employment estimates has been affected at various times by methodological changes in the

Current Population Survey. For an explanation, see the Explanatory Notes

and Estimates of Error section of Employment and Earnings, a monthly BLS

periodical.

11 Ibid.

12 To help discern the overall trends, the data presented in the charts

were smoothed using 3-month-moving averages. Note that the titles of the

charts reference May 1990 because 3-month moving averages are used—

the underlying data series begin in March 1990, and so each of these moving-average series begin in May 1990. Series data from March 1990 forward are available upon request. Separate series for men and women also

are available; diagnostics for other demographic groups did not meet the

criteria for seasonal adjustment.

13 Official CPS series on unemployment can be accessed on the Internet

at http://www.bls.gov/cps/cpsatabs.htm.