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August 196 1
WYO.
NEBR .
Federal Receipts and ExpendituresAlternative Measures .
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3
Structural Change and Unemployment . page 10
Current Statistics
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page 16
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publication.
Federal Receipts and Expenditures - ol-lternative .AfeaJureJ
the magnitude of Federal budget
deficits and surpluses can, if properly
timed, provide a potent offset for economic
instability. Th
onv rs is also true- poorly
timed variations in F cclcral surpluses and dcfi ·its can s 'riously aggravat' c ·onomic instability.
As the awareness of the strntcgi · role of
F d ral surpluses and d ficits has height ned,
fiscal policy analysts have devoted considerable attention to the choice of appropriate
meas ures of the budget's impact.
Early in the postwar period it was recognized that the conventional-or Administrative-budget provided only a partial, and often
misleading, measure of Federal spending and
revenues. Increasingly, analysts turned their
att ntion to the ·onsoliclatcd cash budget. Th
cash budg 't figures cancel out certain int rgov rnmen tal transactions which appear as
both xpenditurcs and receipts in the conventional budget. More importantly, they include
th receipts and xpenditures of the Federal
trust funds . Inclusion of the trust funds in
measures of Federal surpluses and deficits
has become imperative, both because of rapid
growth in the magnitude of trust fund operations and because of the important stabilizing
rol of un employmen t compensation payments,
whi ·h are financed through a trust fund.
H ' ·cntly, many stud ents of fiscal policy
have been turnin g to still a third m asure of
F cderal fiscal activity, one which differs importantly from the cash budget series. This
third mea ure is Federal receipts and expenditures as they are carried in the National In-
S
WJNGS IN
Monthly Review • August 1961
come accounts, prepared by the Comm 'rce
Department. The importance of choosing carefully between the cash budget figures and the
omm rce v rsion may be illustratccl by the
striking differ 'n ·cs hctw en thC'm in fis al
19.59. In that year the Federal ·ash deficit
reached $13.1 billion, a p a · 'lim' record. But
in the sam fiscal y 'ar the d ficit shown in
th National Income accounts amounted to
only $4.8 billion. Clearly, any assessment of
the impact of budget policy on economic activity during fiscal 1959 is bound to be highly
colored by the choice between these two
measures.
The purpose of this article is to explain
some of the major differences between the'
cash budget and Comm rce series on Federal
rec ipts and expenditur s, and to show how
these differen ·es have led to substantially cliff rent ass ssmcnts of the influence of fiscal
policy during recent years.
CONVENTIONAL DISTINCTIONS:
FISCAL POLICIES VS CREDIT POLICIES
In the study of relationships between the
private and the F ederal sectors of the economy, analysts have found it desirable to distinguish clearly between two broad kinds of
policies that influence private spending an d
econom ic a tivity in significantly different
ways. Policies that directly affe ·t private disposable incomes are conventionaHy term cl
fiscal policies, while those that influence private abi lity to spend indirectly throu gh th e
financial markets fall into the category of
credit-debt management policies. A clarifica-
3
Federal Receipts and Expenditures
tion of this distinction is helpful in evaluating the cash budget and the Commerce series
as alternative measures of Federal fiscal
policy. As discussed below, certain elements of
the cash budget have an influence on the
economy akin to that of credit-debt management policies, and these elements account for
the major differences between the cash budget
and the Commerce version.
Fiscal Policy and Private Income
The effects of budgetary imbalance, either
surplus or deficit, on private spending arc
commonly traced to the relationship between
Federal spending and rev nue and ptivate dis posable ( aftcrtax) in omc. The theory of fis cal poli ·y which und c rli 'S the 11sc of the
budget as a stabilizing clevic' is has •cl on the
notion of th ' hudg 't as th summation of all
Governm nt trans:tctions on current account.
The major current account transactions of
the Federal Government include spending on
new goods and services, of which defense
spending bulks largest; Federal transfer payments to the private sector, such as Social
Security benefits and various subsidies; and
taxes. Federal purchases and transfer payments add to private incomes and Federal
budg t r c ipts redu e disposable incom s.
The net Fed ral surplus or deficit therefor,
measures the drag or stimulus to private disposable income provided by the budget.
Analysts pay close attention to the effect
of the Federal budget on private disposable
income because income is considered to be a
primary determinant of private spending.
Federal deficits, which augment the disposable incomes of private households and businesses, are thus thought to provide a direct
and powerful stimulus to both consumption
sp nding and busin ss outlay . Convers ly,
Fed ral surplu s damp n private spending
power. It has becom a commonplace tenet of
fiscal policy that if the Federal budget is to
provide a stabilizing force, the magnitude of
the drag or stimulus resulting from Federal
4
surpluses or deficits should vary in such a
way as to moderate ( or, in the ideal case,
help to eliminate) business cycles.
Credit-Debt Management Policies
The second major class of policies employed
by Government to assist in maintaining conomic stability- er dit and debt management
policies which involve exchanges of financial
ass ts- influences private spending indirectly
through its effects on th financial markets.
Treasury debt operations and Federal Reserve
policies are the most important examples. It
is primarily through th ir impact on interest
rates and on th availability of r dit that
th "Se a 'tiviti ' S have a hearing on cl 'mands for
goods and services , and hell(:(' upon cmploym 'nt and in ·om'.
Th cffe ts of su ·h policies on privat
spending st m from th fact that they alter
the composition of financial assets and liabilities in the private sector of the economy. A
lengthening of debt maturities by the Treasury, for example, reduces the liquidity of the
outstanding debt and tends to raise longterm rates of interest, thereby exerting a restrictive influence on private expenditures for
goods and services. It is not always recognized
that Federal Res rv op rations influ nee
aggr 'gat demands through similar changes
in the structure of financial claims. Thus,
some discussions of monetary-er dit policy
seem to imply that the Federal Res rve can
add to or reduce the bank deposits of the
public without inducing any corresponding
change in other financial assets or liabilities.
But the process of monetary expansion
through the banking system requires that the
public relinquish other financial assets, such
as Government securities, or add to its own
indebtedn ss to the banking sy tern in return
for additional money balanc s. Such changes
in the composition of financial assets and liabilities are intimately tied to the cost and
availability of credit and hence to the strength
of credit-financed demands.
Altern ati ve M easures
It frequently has been argued that, dollar
for dollar, credit-d ebt management transactions have a weaker and less certain influence
on over-all conomic activity than do fiscal
policies because the influence of private disposable income on spending is stronger and
more reJiable than is the influence arising
out of asset exchanges. Ass ssing the merits
of this proposition is not ess ntia] for th purposes of this articl '. It is important to recognize that the means by which these two types
of policies stimulate or restrict private expenditures arc fundamentally different. That
is suffici 'nt reason to distinguish ca reful ly hctwC'<. n ·111Tc11l ac:counl lransa tions of Covcrnnwnl and those whi ·h involve ,1ssel xchangc s.
ASSET EXCHANGES IN THE CASH
BUDGET FIGURES
The differences between the cash budget
figures and those shown in the Commerce
series on Federal receipts and expenditures
turn largely on the distinction discussed
above. It is often assumed that the cash deficit or surplus measures the net impact of
the Government's current account transactions. How v r, cash budg t figures contain
uhstanti al clements of what are actual ly asset
exchang
transactions . Among these ar
Tr asury-financed special assi tance lending
of the Federal National Mortgage Association,
and portions of the lending operations of several other Federal credit agencies.
Another class of asset exchanges enters into
cash budget figures more subtly. Since most
tax liabilities are not paid to the Treasury immediately as they accrue, cash payments of
taxes often lag behind accruals by several
months. Conv ntional a ·counting methods
treat income on an accrua l basis and involve
the cl duction of tax linbili ties from aftertax
income as th tax liabilities accrue. When
budget figures arc used for fiscal policy analysis, the treatment of tax revenues on a cashMonthly Review • August 1961
received basis in the Treasury accounts mistakenly implies that the bite of taxes into
private incomes do s not occur until payment
is made.
Timing of Tax Receipts
Such lags between accruals and cash payments show up most importantly in corporation incom taxes. It seems reasonabl to suppose that most corporation managements keep
accurate books and are sufficiently sophisticated to think of income in accrual terms.
They are not likely to confuse unpaid tax liabilities with net income. The fact that corporations tend to ·ov r their accrued tax liabi1iti ·s wi lh holdings of short-t 'rm liquid ass ts,
su ·h as Treasury hills, r infor ·es th h li f
that unpaid ta, s ar not viewed as disposabl in om .
Ther fore, it seems reasonable to treat the
inroads of corporation income taxes into disposable corporate incomes on an accrual basis
for fiscal policy analysis. Unpaid tax liabilities are in effect a short-term loan from Government to the taxpayer. Net increases in accrued tax liabilities constitute an increase in
this form of Government credit, while paydowns represent a decrease in the net debt of
taxpayers to th Gov rnm nt.
Thus, wh never cash payments of taxes over
any p riod fall short of accruals of tax liabiliti es, there is a net increase in private debt to
Government, and the cash budget figures do
not fully reflect the impact of taxes on disposable private incomes. For example, in fiscal 1959, cash collections of corporation profits
taxes were about $18 billion, the lowest figure
since fiscal 1953, but accruals of corporation
tax liabilities over the year amounted to more
than $21 billion , far from a r cord low level.
Unquestioning accep tance of the cash budg t
figur s for fi · ·al policy analysis leads to a
serious underestimation of the impact of corporate taxes on aftertax business income in
fiscal 1959.
Similarly, when cash remittances of cor-
s
Federal Receipts and Expenditures -
pora tion income taxes exceed current accruals
of tax liabilities, the impact of Federal taxes
on corporate income implied by the cash budget figures is overstated. For example, in fiscal 1958 Treasury collections of corporation
income taxes exceeded corporate tax liability
accruals by about $3 billion. Use of the cash
figures for fiscal policy analysis in this cas
tends to overstate strongly th e impact of taxes
on corporate income.
Timing of Expenditures
Just as tax collections reported in the cash
budget may not accurat ly refl ect the timin g
of th e pin ·h of Gov rnment rev nu c on private disposable in ·om 'S, cash outlays of ,ovcrnnwnl 111ay not properly register the timing of inconu.· generated h Federal spending.
Wh 'n business sells to tl ' ov rnn 'nt on
credit, business income accrues as goods arc
produced and delivered, but th purchases do
not show up in the cash budget until payment
is made. By the same reasoning, when cash
paymen ts for goods and services sold to Government are made before actual production
and delivery, they do not represent additions
to curren t private income, but are a kind of
short-term loan. Until the prepayments are
work ·cl off, tlwy arc arriccl as liahiliti s in
the accounts of busin ss firms . Thus , the
stimulating •ffcct of the Fed ral purchase on
private in ·ome is improp rly timed in th e
cash budget series .
To assess properly the timing of income
earned from production for the Government,
it is necessary to convert Federal cash payments for goods and services to an accnial
basis by deducting net increases in Government prepayments and adding net increases
in Governm "nt ac ·ounts payable. The net
changes in Fed 'ral prepayments and in Govrnrn nt accounts payable, which measure th e
differences between Treasury cash outlays
and accrued exp nclitures, can then be trea t d
as aspect of Federal policie~ that affect the
cost and availability of credit.
6
Elimination of Asset Exc hanges
from Commerce Series
The kinds of asset exchanges described
above are largely eliminated from Commerce
Department estimates of Federal receipts and
expenditures on
ational Income account.
Federal lending and borrowing operations,
transactions in secondhand assets, and financial transaction with th International Mon tary Fund arc not includ d in the Commerce
series on Federal receipts and expenditures.
Corporation income taxes and excise taxes
are carried on an accrual basis , as are Government purchases of goods and services.
Taxes withheld from wages and salary in ·orn · arc r 'Corckcl i11 tire Commn ·c series
,lt the lime of withholding, rather than at th·
time of receipt by th · Treasu ry. Sine' withholdings clos ly match accruals, the effect is
to treat withheld taxes on at least a rough
accrual basis. The one major element of Federal receipts that is not treated on an accrual
basis is nonwithheld individual income taxes.
These are recorded at the time of receipt by
the Treasury, just as they are in the cash
budget.
COMPARISON OF CASH BUDGET AND
COMMfRCE SERIES
Th
x '1usion of large el ments of asset
xchang s from th "' Comm re s rics gives
rise to substantial differenc s between the
cash budget and th e National Income account
figures , especially when economic activity is
unstable. This can be seen by examining
Chart 1. The black bars show Federal cash
surpluses and deficits for the fiscal years
1952-60, along with the officially estimated
defi ·it for fiscal ] 961, and the colored hars
show surpluses ancl cl ,ficits in the ational
Income accounts . Clearly th ' timing of swings
from surplus to deficit and back is markedly
different in the two series.
These differences aris mainl y out of cycli cal developments, and are to be expected in
Alternative Measures
Chart 1
FEDERAL SURPLUS AND DEFICIT
Fiscal years 1952-6 1
BILLIONS OF DOLLARS
+10
+8
+6
+4
+2
0
---+..,.....,,--.___,._....,___....-__....____..___,__.---,.__,_ ,._,___,;.:.+--<
-2
-4
-6
-8
- 10
- 12
- 14
I 52
'53
'54
'5 5
'56
' 57
'58
'59
'60
'61
• Les th an $50 rnlll1on .
••No re ce nt estimate avai la bl e.
SO UR C S: Federal Reserve Bull etin, Survey of Current Business, and
Economic Ind ica tor s.
vi 'W of the differ •11t concepts mploy cl in
constructing th' two s ries. The most volatile
element in Federal receipts is corporation income tax receipts . This important source of
revenue is tied closely to corporate profits,
which in turn are highly sensitive to variations
in over-all economic activity. Since corporations pay income taxes in quarterly instalments, with an average lag of about 6 months
after accruals of tax liabi lities, the resulting
differ nee betw en cash paym nts and acruals of liabiliti es t nds to be large whenever
corporate in come flu ctuates . Similarly, cash
remitta nces of indirect business taxes lag behind accruals of liabiliti es by about 3 months,
so that changes in th ese revenues also show
up later in the cash budget figures than in
the Commerce series .
In addition, the extent of F ederal lending
operations that are included in the cash budget hut not in the Commerce series increased
during the period of recovery from the 195758 rec 'S ·io11 . partly he ·m1se of tlw implementation of tli<' spec ial assistance program of
FNMA, which was dcsigncd to holster economic rccov<'ry .
E.\tcnsions of vmio us fo rms of F ederal
(Ted rt to th<' pri va l<' sector explain most of the
Monthly Review • August 1961
increase in the cash deficit during fiscal 1959,
a p eriod when the deficit in the National Income accounts fell. In view of the marked differences of the figures for fiscal 1958-59, it is
not surprising that analysts who use cash
budget figures take a much dimmer view of
the budget's stabilizing role than do those who
rely on the Commerce series.
The point at issue can be examined more
carefully if the figures are presented in greater
detail. The top panel of Chart 2 shows the
seasonally adjusted cash surplus or deficit on
a quarterly basis. For reference, periods of
economic declin are shad d. Durin g th first
su ·h period , th major move toward dcfi it
cl vdopc<l after the nd of th e declin • of
]957-5 , and the move toward surplus cu lmi Chart 2
FEDERAL SURPLUS AND DEFIC IT
Seasonally adjusted quarterly totals, 1956-61
BILLIO NS OF DOLLARS
SEASONALLY
ADJUSTED QUARTERLY TOTALS
+3
I
I
TREASURY CASH BUDGET
+2
+I
0
-I
-2
-3
-4
+3
NATIONAL INCOME ACCOUNTS
+2 f
+I f
0
- I •
-2
-3
t
~
.J..
1956
I
' 57
I
I
'58
J
J
1
'59
I
.l
l
'60
I
I
J
.J
1
'61
•zero .
NOTE: Shaded areas show periods of economic contraction defined
acco rding to cyc l ical reference dates of the National Bureau of
Economi c Res earch except for the 1961 February turning point ,
wh ich was estimated by the Federal Reserve Bank of Kansas City .
SOURCES : Federal Reserve Bulletin, Survey of Current Business, and
Economic Indicators .
7
Federal Receipts and Expenditures -
nated in the third quarter of 1960, after the
most recent downturn had b egun. The strong
shift from deficit in early 1959 to surplus in
mid-1960 has been regarded as an important
deterrent to continued recovery in 1960.
The bottom panel of Chart 2 shows seasonally adjusted quarterly F ederal surpluses
and deficits as th y app ar in the Commerce
series for calendar years 1956-60. As far as
timing is concern ed, the turns in the surpluses
or deficits shown by the Commerce series
h ave been closely in accord with standard
prescriptions for fiscal stabilization . policies,
and analysts r lyin g h avily on the National
lncom ' s ri ~s hav' giv n th bud g t ra th r
hi ,h marks fo r th timin g of swin gs toward
surp lus or cl fi it <l uring r "C nt busin ss flu tuations. With r gard to th earli r r cession,
it is evident that much of the move toward
fiscal surplus occurred by the first quarter
of calend ar 1959, when the cash budget was
just beginning to move toward surplus.
Importance of Corporation Taxes
Chart 3 is designed to bring out the crucial
nature of differences in the timing of tax receipts as they are carried in the two accounts .
The top black line shows seasonally adjusted
Tr asury cash receipts, while th top colored
line show s asonally ad justed F ederal receipts in th National Income accounts. The
lower portion of th ch art shows seasonally
ad justed quarterly figures for the major component groups of Federal receipts as they are
carried in the National Income accounts. Unfortunately, separate components of Treasury
cash receipts are not available on a seasonally
adjusted basis, and comparisons of unadjusted
figures are extremely difficult b ecause of the
high d gre of seasonality in tax payments.
T he de line of total r ceipts during the
1957-58 downturn was distinctly more impressive in the Commerce seri s than in the
Treasury cash budget. The bottom portion of
the chart sh ows that the sensitivity of Fed eral
receipts in the N ational Income accounts
8
Chart 3
FEDERAL GOVERNMENT RECEIPTS
1956-61
BILL IONS OF DOLLARS
27
EASONALL
AOJUSTED QUARTER Y TOTALS
25
23
TOTAL RECEIPTS - NATIONAL
INCOME ACCOUNTS
l
i
..J
21
19
_J
10
I
PERSONAL TAX ANO NONTAX RECEIPTS
CORPORATE PROFITS TAX ACCRUALS
6
4
- --- - - - : ; : : - - - -
------2
l
~=-:::::::-:."-_:;----INDIRECT BUSINESS TAX
ANO NONTAX ACCRUALS
CONTRIBUTIONS FOR SOCIAL INSURANCE
O .._.__
, 9._
5 .....
6 _,__...__,5.._7_...__..__.__
, 5......8~
..............- , ......
59_.__.__._,_._
60_._~...........
. 6_1 ......__.
NOTE : Shaded ar eas show periods of economic contraction as
expla ined i n note to Chart 2.
SOURCES : federal Reserve Bulletin and Survey of Current Business.
during the period of decline was due mainly
to falling corporation profits tax accruals.
Quart rly accruals of corporation profits tax s
fell by nearly $1.2 billion , or about 23 per
cent, from the third quarter of 1957 to the first
quarter of 1958. On an annual rat basis, the
decline in corporation profits tax accruals
amounted to $4.7 billion.
Subsequently, as recovery set in, quarterly
accruals of corporation profits taxes rose $2.2
billion, or more than 50 per cent, between the
first quarter of 1958 and the second-quarter
1959 high. On an annual rate basis , this represented an upsurge of $8.6 billion. After mid1959, corporate profits tax accruals declined
for two quarters, showing both the effect of
that year's prolonged steel strike on business
profits and the narrowing of profit margins
that generally characteriz s the later stages 'of
Alternative Measures
an economic recovery. A mild increase in early
1960 was followed by a further decline in response to the onset of recession. Accruals of
corporate profits taxes probably continued to
decline through the first quarter of this year,
when pretax corporate income apparently
rea hed its lowest point of the recession.
Th two other major components of Federal
rec ipts, personal income taxes and contributions for social insurance ( mos tly Social Security levies), are not importantly involved in
explaining the differences between the cash
and Commerce figur s on F ederal receipts.
Nonetheless, the chart does show that individual in om tax r c ipts ( tog ther with c rtain 1niscclla11cous non lax r ' ·cipts) as they
ar _. carri ,c] in the National ln ·om a · ·01111ts
turn cl down slightly during the two quarters
embracing the major part of the decline of
1957-58, and then rose until the third quarter
of 1960. The decline during the recession of
1957-58 was only $1.5 billion on an annual
rate basis, or about 4 per cent, and available
evidence indicates that a similar development
has occurred during the latest recession. The
strength of individual income tax receipts in
recent periods of economic contraction is due
primarily to the relative stability of personal
incom s during r cent r 'cessions.
Differ nces in the timing of Federal expenditures generally are less important than
those of the receipts side in explaining differences in the surplus and deficit fi gures
recorded in the two series. However, increases
in Federal lending included in cash budget
expenditures do explain a significant portion
of the large deficits in the last two quarters of
calendar 1958.
EVALUATION OF ALTERNATIVE MEASURES
Th wide div rgence between swin gs in
Federal surpluses and deficits shown by the
two series indicates the importance of choosing carefully between alternative measures of
Federal spending and receipts. There is no
Monthly Review • August 1961
reason for flatly rejecting either the cash budget or the National Income account figures as
appropriate measures of Federal finance. Each
has distinct usefulness in helping to provide
answers to certain questions.
The cash budget retains the compreh nsive
coverage of Federal cash transactions with
the public that first led analysts to use it
rather than the conventional Administrative
budget for purposes of assessing the Federal
Government's financial impact on the private
sector. However, because it includes elements
that are properly considered asset transactions, the cash-flow p rspective gives an imp rf ct rn asur of th di r ct influence of
Covcrnrn 'nt financ 'S on current private disposahl in ·om'. Thcs asset transactions,
wheth r th 'Y r pres nt l nding a tivitics of
Federal agencies or the extension and paydown of private tax indebtedness, are best
treated by separating them carefully from the
factors influencing accruals of private income
and tax liabilities. } ust as it is useful to eliminate public debt operations from budget figures, so it is useful to exclude asset exchanges
generally from measures of fiscal po1icy, and
to consider them in terms of their influence
on private liquidity and the cost and availability of credit.
The developments of fiscal 1961 and 1962
no clou bt will be similar in many respects to
those of fiscal years 1958 and 1959. The F deral cash deficit is expected to rise in
the present fiscal year from the estimated
$2.1 billion deficit of fiscal 1961. But this will
reflect in part the lag of corporate tax payments behind accruing liabilities which, if
economic recovery persists, should grow substantially between fiscal 1961 and fiscal 1962.
As a cons quence the cash budget may greatly oversta te the impact of the F d ral budget
on privat disposable income durin g the curr nt fiscal year, thereby giving a misleading
impression of the stimulus to the privat .,
economy arising from fiscal poli cy.
9
STRUCTU A CH NG
of much recent economic
discussion is the problem of unemployment. While the belief remains widespread
that expansionary monetary and fiscal poli i s
provide the appropria te nvironm nt for solution to th prob] m, increasing atten tion is
being directed toward the behavior and haracteristics of unemploym nt. Awareness of
th se characteristics, which has been encouraged by the xpancl d availability of data in
the last two clc ·ad s, has giv n ris · to and
supported a growing interest i11 elev loping a
broader apprc ·iati on of the employment
prob] ·m. I mporlant as it is to know wh •ther
total uncmploym nt is high or ]ow, it is re ·ognized increasingly that such knowl <lg by
its 1f is insufficient to determine appropriat
public policy. Rather, this knowledge may
profitably be augmented by a greater understanding of particular characteristics of the
labor force and of the unemployed.
In calling attention to the growing recognition of the significance of more specific
knowl dg on unemployment behavior, it
should not h' ass11m cl that a11 of the rcquir ~cl
information on hara -t "risti ·s is availabl . On
the ontrary, mu ·h of what is n ss< ry to
assess the signifi an e of particular hypothes s
remains unknown. Addition al information of
better quality stil1 is needed. And of equal and
perhaps even greater priority is the need for
more useful definitions and concepts. Threading through some of the complexities surrounding manpower utilization, it becomes
evident that logical and analytical considerations require onsi krably great r elev loprnent and, in turn , suhstit11tion for some of the
pragmatic concepts evolved over tim .
owhere, perhaps, has tl is lack of att nt io11 to concepts and op rationally m anillgful
definitions been mor ' appar nt than in th e
, rn dnral unemployment is ue. Since automaT THE CENTER
10
N
u
EM L y E
tion, shifts in demands, and oth r chan ges in
the structur of production and demand affect manpower utilization, various statistical
measurem nts have be n dev lop d recently
with a view toward isolating the magnitude
of som of these structural lements in unemploym nt. Whil su h £forts ar laudabl ,
their int rpr tation must r cogniz \ as is al ways trnc, th · rcstri tions on g ncralizations
imposed hy underlying ass11mptio11s . Particu larly in the ·as' of stru ·tural un ·mployrn 'nl,
car fu] id 'ntification is r quir ,d of th assumptions relating to the equilibrating for es
operating through wage adjustm nt and substitution in labor markets and to the institutional restrictions imposed upon those forces.
In this way, some of the current misunderstandings concerning the structural problem
may be resolved.
This arti le, while seeming to paint with a
broad brush, has be n shaped by a sp ::,cific
objective. It has h en aim cl at th id en tifi·ation and m asur ment of major stru ·tural
shifts in th growth and utilization of manpow r resources since th
nd of World War
II. Diff rcntial rates of growth among components of the labor supply, resulting from
changes in the proportions of population
groups engaged in labor force activity and
from past variations in the birth rate, contain
structural elements. Similarly, changing patterns of mployment - refle ting not only
sh ifts in ·onsum r cl mands, but also hifts in
produc r cl man<ls through new tcchno~ogies,
product substitu tion , and the lik - have
structural implications. Upon these considerations and their relation to the unemployment
problem, the burden of the as for this investigation rests.
Structural Change and Unemployment
POSTWAR UNEMPLOYMENT EXPERIENCE
As background for investigating these structural changes, it is useful to consider the postwar record of the volume and incidenc of
unemployment. During four postwar recessions, the over-all unemployment rate never
has exceeded 7 ..5 per cent of the civilian labor
force. At its lowest level , the rate held near
2.5 per cen t for several months in 1953. ( All
data used in this section are seasonally adjusted.)
While it is often pointed out that the unemployment rate has heen higher at successive peaks of postwar cycles, interpretations
of that progrc'ssion may well profit hy re ·o~nit io11 of the particular cir ·111nstan ·cs prevailing at specific limes. 'I he dedi11c in un 'mployrnent during L9.51 -,5.'3 is asso ·iat ,d in a
substantial way with partial mobilization for
the Korean War. The meaning of the low
levels of unemployment in those years in relation to other periods, therefore, needs to
reflect that wartime environment. During the
cyclical expansion covering 1955-57, the unemployment rate declined to a level approaching 4 per cent of the civilian labor force and
compared favorably with conditions in 1948.
Only in the last period of cydical expansion ,
1958-60, did th ' rat' of unemployment hold
at a clistin -tly and meaningfully high 'r level.
In not falling b low 5 per cen t during that
period , unemployment conditions reflected the
premature termination of the economic expansion in early 1960.
Tracing the levels of unemployment at successive recession troughs reveals no systematic tendency toward higher rates. In 1949,
with the first postwar adjustment, the rate
reach d a high around 7 per cen t. Following
the Korean truce, another economic adjustment carried un mployment upward , reaching
a peak around 6 per cent. It was during the
following recession period , 19.57-58, that overall unemployment conditions were the most
severe of the postwar period. The un employMonthly Review • August 1961
TRENDS IN UNEMPLOYMENT
Seasonally Adjusted
PER CENT OF CIVILIAN
10
:
LABOR FORCE
~
NEMPLOYMENT RATE
~
2
0
MILLIONS OF PERSONS
6
A
4
J
~
l::r
f'\v/
AL UN EMPLOYEO
PER CENT
45
40
35
30
25
20
10
5
1948
'49
'50
°51
'52
•53
' 54
'55
·~G
'5 7
'58
'59
NOTE : October 1949 rate exaggerated by coal miners on strike who
reported they were seeking other jobs .
SOURCE: U. S. Bureau of the Census .
ment rate held above 7 per cent for several
months and mounted to a postwar peak rate of
7.5 per cent. That the experience of 1958 was
not a step toward progressively higher levels,
however, was borne out during the first half
of this year in which the peak recession rates
held steady on the lower side of 7 per cent.
Estimates of the total number unemployed
·ach month may he viewed as being comprised of two clements. One is the number
of persons entering the ranks of the unemployed during th e month. 1 his repr<:sents ne,v
idleness. The other element is the number of
persons experiencing continuing un employment, which reflects the duration of individual
spells of idleness. These components of unemployment may develop different patterns
relative to each other because they are associated with different labor market factors.
Long-term unemployment is often a, sociated with structural developments arising
from chang s accompanying growth in the
economy. While th e impact of such changes
may he confined to a relatively small proportion of the labor force an<l to parti cular geo11
'6 0
'61
Structural Change
graphical areas, the duration of the idleness
may very we1l be long term because of the
inability of those idled to shift readily into
new occupations or to move their residences
to areas of great r employment opportunities.
Inspection of the tr nds in total and in longterm unemployment during the postwar
period rev als two significant charact ristics
of the long-term element-commonly identified as comprising those out of work for 15
weeks or more. First, long-term unemployment rises and falls with th e business cycle,
and its swings have considerably greater amplitud than in total unemployment. S con<l,
th inciden ·c of long-term un 'mploym 'nt
has mount -d. The proportion of th' total idl e
for Jong ' r p riods has tend ,c] to in reasc from
one cyc1e to th ne t. Tra fog through th
postwar recessions, the ratio of long-term to
total unemploym nt rose to a high of about
25 p er cent in the first adjustment. During
the following recession, the proportion advanced to about 28 per cent, even though the
over-all unemployment situation was not as
severe in 1954 as it had been in 1949. Again
during the economic downturn of 1958, the
long-t rm proportion mounted to a high of
about 38 per ent of total un mployment. The
1958 peri n
repr s n ted th most s v r
unemployment situation of th e postwar
period. During the last recession, th ratio of
long-term to total idleness was high est in the
spring of this year when it amounted to about
one third.
Thus, at their respective peaks in 1949 and
1961, over-all unemployment rates, i.e., the
proportion of the civilian labor force unemployed, wer about equal at approximat ly 7
per cent. With a substantially larger labor
force in th latt r year, how v r, th e numb r
of p er ons idle ros about 750,000 to a total
of approximately 5 million. The long-term
component, meanwhile, advanc d to a level
of more than 1.5 million and accounted for a
major portion of the increase in the total. This
12
growth in the proportion experiencing longterm idleness may explain in part the more
plateau-like highs in un mployment during
the last two recessions.
These estimates of lon g-t rm unemployment, it should be noted, understate th seriousness of the problem. Based on monthly
surv ys of the labor fore which relate to a
parti cular w ek ach month, th estimates fail
to record the cumulative amount of idleness
for those persons who experi nee more than
one spell of unemployment during a calendar
year. In 1959, for examp] , 39 per cent of those
having any un mploym nt w ,.re without work
two or mor' tirnes, a 'Cordin g to the annual
survey of work cxperi ·n · '. The ·umu latio11 of
th ~s' sp 'lls of idlen 'SS for ti al year resulted
in 34 per c nt of th un mploy d xp 'ricncing
long-term idl ness compared with a 27 p r
cent av rage measured by the monthly survey.
INFLUENCE OF LABOR FORCE PATTERNS
The most striking change in the labor force
within the past several years has been the
sharply rising rate of labor force participation
among women. Between 1949 and 1960, for
example, the annual average size of the civilian labor fore incr ased by 8.5 million persons. Women w r the major fa tor in th
gain and accounted for about two third of
the expansion. Major in reas s w re centered
among women in the ag groups from 35 to
54 years. All female age groups in the labor
force increased more rapidly than the total,
however, except those in the 20-24 and 25-34
age groups. In the younger category, the number of workers, male as well as female,
d dined. Among men, only the 45-54 age
group incr ascd more rapidly than the total
labor for e. Al] other ma] ag' groups r pres nt sma1l r proportions of the current labor
force than a decad ago.
Since women rather consistently experience
higher unemployment rates than men, the
greater participation of women in th e labor
and Unemployment
force would tend to raise the over-all rate of
unemployment, other things being equal.
Without attempting to isolate the specific effect of th e greater number of women on the
total, however, it is apparent that they contributed substantiaJly to the increased number
of tm mployed during the last decade. Four
fifths of the increas between 1949 and 1960
repr sented increased jobse king among
women , who in the latter year accounted for
about 35 per cent of the total unemployed.
Idleness for all female age groups increased
more rapidly than total unemployment, with
th IargC'st incrcm nts occurring in those
groups whi ·h showed the largest labor fore
gains. Among men, unemployment ros l 'ss
than proportionately in a11 ag groups, exc pt among t cnagers and the 45-54 ag
group. Again, as a matter of perspective, the
terminal dates selected-1949 and 1960-were
generally similar in terms of labor force utilization. During both years, unemployment was
advancing and the annual average rates were
virtually identical.
The relationship between these changes in
the composition of the labor force and unemploym nt does not seem to be positively
related to th increasing incidence of longt rm idleness, however. Long-term un mployment among adult women is relatively low
and their increased importance thus tends to
reduce the significance of long-term idleness.
In the first quarter of this year, for example,
1.9 per cent of the women in the labor force
were long-term unemployed, compared with
2.5 per cent for men.
Shorter periods of unemployment for women than men reflect in part the greater mobility of women into and out of the labor
for e. Arising from this mobility is an important difference for men and women in the
relation between previous labor force status
and unemployment. In recent years, an average of more than one half of the women who
have been added to the unemployed each
Monthly Review • August 1961
month were in a nonlabor-force status, primarily housework, the previous month. Among
males, additions to unemployment originate
primarily in a previous status of employment.
Summarizing the influence of compositional
changes accompanying labor for e growth,
two divergent implications for unemployment
are apparent. First, with their increased participation in the labor force, women have become a more significant element in over-all
unemployment. On the other hand, experiencing shorter periods of idleness than men, they
have served to counter the influence of other
fa tors making for longer periods of unemploym nt. Also, the absolute de line in the
numb r of work rs in the 20-24 age group,
whi h tends to have high rat s of Iong-t rm
idlen ss, has reinforced the latter development.
INFLUENCE OF THE DEMAND FOR LABOR
Long-term changes in the composition of
the demand for labor also have affected the
rate of manpower utilization. Indeed, the impact upon unemployment and upon the duration of idleness stands out clearly in many industries and communities. As a matter of
general classification, two kinds of changes
may be readily identified. Shifts in the composition of consumer demand-reflecting the
development of new products and services,
changing tastes, and so forth-affect the pattern of employment. So also do technological
advancement, rising productivity, and other
factors which influence directly producer demand for manpower.
The recent shift in consumer demand from
standard to compact cars, which reduced
labor requirement per car as well as th need
for steel and other materials, is a good example of the eff ct of changes in consumer
tastes on a particular category of manpower.
This also exemplifies in one way the continuing shift in outlays for goods relative to services. Outlays for services are rising faster
13
Structural Change
than those for commodities and are supporting a persistent and substantial shift in the
industrial distribution of employment. The
trend toward more rapidly rising employment
in service-producing industries has bee n apparent for some time. 1 Even in the short
p riod from 1949 to 1960, th e proportion of
the xperi n d lahor fore employed in goodsprodu cing indu tri 'S de ,Jin <l from about 51
p 'r ce nt to --!5 p er cent. Migration from the
farm played a major part in the d evelopment,
hut oth er goods-producing industri 'S, sp ecially in manufacturin g, have not kept p ace
with th exp a nsion in s rvi
a tiviti es.
The slow increas' in ernplo nwnt devoted
to goods procl11ctio11 is not cxplai11cd entirely
hy the trend of outla ys for goods , howevcr.
Technological innovation and produ ·tivity as
suggest d abov ', ha c vas tly reduced m, npower requirements per unit of output. Auto
industry employment, for example, also has
experienced the impact of rapid technological
change as automation has led to labor displacement in recent years. Likewise, the bitu minous coal industry has suffered reduction s
in employment largely du e to comp tition
from rival fuels and to technology, includin g
both m chan ization of coal min s and innovations in major coal-consuming markets. Orw
of thos markets was th railroad in lustry,
wh 'r the introdu ction of th e di esel lo ·omotive con tributed to th ability of th e railroads
to handle incr ased traffic and imultaneously
reduce employmen t. Thus, the service-producing industries have not completely escaped
changes dictating reductions in employment,
but goods-producing industries have sustained
th e major impact.
Ac ompanying th changing industrial di stribution of 'mp loyme nt hav ' h 'n hroacl
1Goods-producin g industri es includ e agri c 11lt11re , mi11 ing, manufa c turin g , and co nstru c ti o n . S ·rv ice- produ ·in g industries include trad e , finan ce, transpo rta ti on ,
publi c utilities, government, and other s rv icc ac tivi ti es.
14
changes in the occupational structure of the
labor force. White-collar workers have increased substantially as a proportion of total
employment, while blu e-collar employment
has fail d to keep p ace with th e total. :.! The
proportion of whit -collar employees has b een
mounting sin e early in this century, but
growth in th eir numb 'r has b e n parti cularly
rapid in post\ ar yea rs. White-co11ar mployees outnumbered blue-collar workers for
the first time in 1956, and in 1960 they re presented 47 p er cent of nonfarm employment.
Durin g the 1950's, th number of prof ssional ancl te ·hni cal emplo ccs grew most
rapid] at a rate more than three lim es greater
tlia11 that of total 11onfarm cmploy111c11l. Clcri ·al employment grew al aho11t twice th<' rate
for th ' total , whil(' th e nun I 'r of s,tles wo rk'rs incr •as ,c] at about the same rat' as ov 'rall nonagricultural employment. The rate of
increase for managers, officials, and proprietors was much smaller.
Employment of blue-collar workers ros e
only 1 million during the 1950's-a gain of 4
p er cent compared with the 27 p er cent increase for white-collar employees. early all
of th e expansion in blue-collar jobs was confined to ski lled craftsmen and forem en. In
total , hlu c- ·ollar work rs comprised 40 pe r
·ent of nonfann e mploym ' nt in 1960. Hounding out th pi -tur ' of nonfarm employm nt
growth, servi ce worker employment grew at
about the same rate as the whi te-collar component. Expansion was due largely to the gain
in general service worker occupations.
:!White-c:o ll ar occupations include profes ·ional , tech nical , and kindred workers; man agers , offi cia ls, and
proprietors, cxc<' pl farm ; clerica l workC'rs ; and sales
wo rke rs. Blu C'-co ll a r occupations inc:lu ck Ta ft sm e n ,
forem<'n , a nd kinclrccl workers ; op ·rati vcs and kindred
wo rkers ; and la b ore rs. A third category is c0111prised
of se rv i<:C' ,,·or J.. c rs, which incluc.l · thos<• in priv a t ·
lioust'hold scr\'i<:c , a r d protect ive , personal , and in \ tit11ti o nal serv ices. Farmers and farm workers compose a fourth oc.:c upati on a l gro up.
and Unemployment
Growth in th numb r of whi te-collar workers is re]at d to the growth of ser ice-producing industries. Whit -co11ar jobs are concentrated in th e service sector and it has supplied
th e major source of expansion in recen t years.
However, white- oJla r employmen t has increased in every industry group and rec nt
relative gains in goods-produ cin g industri s
hav ' be n as large as in service-produ cing industri es . White-collar employment in construction and in durable goods manufacturing increased 36 p r cent between 1952 and
1960, eq ualing the combined increase in finan ce, service, and public duca tion.H
rn the goocls-proclu ·ing ind ustri es , the
growth of 11011prod11 ·tion -workcr 'tnploym nt
mirro rs rather close ly th e in -rea.sing irnportan ·e of white-coll ar work ' rs. In 1947, about
16 p 'r cent of th
mployment in manufacturing and 10 per cent each of construction
and mining employment were composed of
nonproduction workers. By 1960, the respective proportions were 25 per cent, 15 per cent,
and 22 per cent. Overall, 23 per cent of the
employment in the nonfarm goods-producing
industries was in the nonproduction-worker
category in 1960. While several factors influen ce the proportion of nonproduction
work ' rs, t ·chnological co nsiderations hav b come increasingly importan t and have ontribut cl to rising demands for profes ional
and technical workers. Through th e innovati ons which attend their efforts, in turn , increased output is possible without corresponding additions to production-worker forces.
What implications do these changes in the
patterns of employment have for unemployment and its duration? Other things being
:q )a ta relati ve to o ·cupations arc derived largely from
an ex tensive trea tm en t of white-collar employ ment in
th · January and F ·bruary 1961 issu es of the Bmeau
of Labor Statist ics Monthly l,abor Review. Th c:lassifi cilt ion of occupation by industry from th e mon thly
labor force survey is available only since 1952.
Monthly Review • Augu t 1961
equal, th e larg r proportion of the labor force
in servi ce-producing activi ti es and whi tecoll ar occupations would tend to lower the
over-all rate of unemployment. These activities and occupa tions customaril y 'p erience
lower rat s of un mploymen t. mong whit coll ar workers, unemploymen t ra t · have been
r markably stable. At th e peaks of economic
acti vi ty, th y are considerably ]ow r than
rates of blu -collar and servic' workers and
th ey advance less during periods of r cession.
However, shifts in the composition of employment have not proceeded smoothly and
have r ult cl in some di ·equilibrium in th ,
al locati on of labor n 'sou1-ccs. There has hccn
a la g in th e adj11.stmc11t, with th e com posi ti on
of .supply failing l o kee p pa ·c wi th ·han gc.s in
the composi tion of demand. lt is frcqu ' ntl y
difficult for un mploy d blue-collar workerswhose work experi ence has been gain cl in
manufacturin g, mining, or railroading- to shift
into new lines of work. Employers often are
reluctant to hire such workers. The workers,
in turn, face difficult decisions. If they are
successful in finding new employment it is
likely to be in trade or service ac tivities, which
pay consid rably lower wag s than th y have
been accus tomed to receiving. Moreover, after
sev ral y ars with a parti cul ar organization,
workers acqu ire v 'S t d interes ts in th e form
of seniority and pension rights, sick benefits,
and so forth , w hich serv to attach th em to
that company, despite even p rolon ged periods
of unemployment. These and other barriers,
particularly fina ncial, also tend to restrict
their mobility to other areas.
Thus, workers who last worked in manufacturing, mining, or railroading, constitute th e
bulk of thos unemployed for Jon g p riods of
time. About 40 per cen t of th lon g- term unmployed in 1960 ca me from thos industri es.
The problem is mos t severe for the unskilJ ecl
and semiskill ·cl workers, because th ey are
more like] to experience long-term idleness
than tho e with greater skills.
15
Structural Change and Unemployment
SUMMARY
Since World War II, cyclical peaks in the
over-all unemployment rate have shown remarkable similarity. While this is not correspondingly true for the troughs in unemployment ( peaks of business activity ), the
circumstances surrounding the upward progression in rates must be evaluated. The duration of unemployment, meanwhil , has lengthened as is indicated by the upward trend of
the ratio of long-term un mployment to the
total of those seeking jobs. This is clearly
pointed out by the advance in the ratio b tw en periods of essentially similar conditions
in t rms of ov r-all unemployment rates.
Women hav suppli cl th ' gr 'at hulk of
th' additions to th labor fore' sin·' World
War II and th y now ·ompri a larg r proportion of the un mploy d than in arli r
years. Their greater mobility into and out of
the labor force, combined with a greater concentration in retailing, office work, and domestic service, however, yields lower rates
of long-term idleness than for men.
The changing composition of industrial and
occupational demands for labor is closely related to the increased duration of unemploym nt. Differences in skills and rates of pay
and various institutional and individual barriers reduce the mobility of displaced workers
in finding jobs in more rapidly expanding
alternative industries and occupations. For
c rtain groups of th work force who face
s v re comp tition for jobs und r most conditions- older m '11, nonwhit s, and the 1 ss
skill d and du ·atcd- th ' transition is parti ularly arduous and th ir un mploym nt problem is difficult.
BANKING IN THE TENTH DISTRICT
loans
Deposits
Reserve
District
PRICE INDEXES, UNITED STATES
Reserve
City
Country
City
Country
Member
Member
Member
Member
Banks
Banks
Banks
Banks
and
June 1961 Percentage Change From
States
June
1961
Index
May
1961
June
1960
Consumer Price Index
( 1947-49 = 100)
127.6
127.4
126.5
Wholesale Price Index
( 1947-49 = 100)
118.2
118.7 r
119.5
Prices Rec'd by Farmers (1910-14 = 100)
234
236
235r
Prices Paid by Farmers
300
302
299
( 1910- 14 = 100)
r Revised .
TENTH DISTRICT BUSINESS INDICATORS
Tenth F. R. Dist.
Colorado
May
June
May
June
May
June
May
June
1961
1960
1961
1960
1961
1960
1961
1960
- 1
-1
+s
+3
Kansas
-4 +11
Missouri *
+1
Nebraska
New Mexico *
Oklahoma *
Wyoming
+11
+11
+1
+1
+10
+1
t
+1s
-1
- 1
+3
+1
+1
+1
+4
+s
+1
+s
t
+a
+2
+9
t
+7
Payments
Percentage change-1961 from 1960
Areas
June
Year
to date
June
to date
+4
Year
+s
+6
+4
Denver
+is
+13
+9
+6
Wichita
+a
+2
0
- 3
+s
+s
+2
+1
+is
+21
+10
-1 7
-1 0
Tenth F. R. District
+4
- 1 +12
- 1
+6
- 1
+9
**
**
t
**
**
- 2
+s
Kansas City
- 3
+2
Omaha
- 2
t
t
+1
+11
+2
+10
+ 2
+a
Oklahoma City
**
**
t
+a
**
**
t
+1
Tulsa
+1
+4
* * No reserve cities in this state.
Value of
Department
Store Sales
Value of
Check
- 1
*Tenth District portion only.
t Less than O.S per cent.
16
t
District
and Principal
Metropolitan
+2
-4
- 3
@FedFRASER