Age and education effects on the unemployment rate

The national unemployment rate fell slowly during the first half of 2005, reaching 5.0% in June. While this is above the lows reached in 1999-2000, it is noticeably below the rates that largely prevailed during the mid-1970s through the mid-1990s. This Economic Letter focuses on two demographic factors that help explain the reduction in the unemployment rate over the past few decades. The first is the composition of the population by age group, and, in particular, the contribution of the aging of the baby boom generation to the long-term decline in the unemployment rate. The second is rising educational attainment among the population. In our analysis, we account for joint influences of age and education. Our results suggest that both factors made a significant contribution to the downward trend in the unemployment rate over the past few decades, although their influence was not large enough to fully account for the very low rates achieved near the most recent business cycle peak (years 1999-2000).