A commentator on my blog asks if the reason that unemployment appears to be more important than labor force participation as a cause of recessions is that the scales are different on Chart 2 from my previous blog post. I don't think that's it.
Chart 1 (left) shows the data in a different way. The red series is the civilian labor force. The blue line is the number of unemployed people. Both series were originally measured in thousands of people. The data on the graph have been normalized by constructing index numbers. In each case I normalized the series in December 2007 (the start of the Great Recession) to 100.
Both series have un upward trend. That's because of population growth: there are more people in the labor force each year and there are more unemployed people each year. My point has nothing to do with the trends. Its about the wiggles.
Look at it another way. If I gave you the red series and asked you to predict the number of people in the US labor force in 2015, using data through 1990, you'd probably do a pretty good job using lagged values of the labor force, lagged values the US population, and a quadratic time trend. If I also told you there was going to be a major recession lasting from December of 2007 through June of 2009, it wouldn't have helped you much, if at all, in your prediction. Recessions are all about the wiggles. Participation is all about the trend.