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Hysteresis in the Labor Market

Paper Session

Saturday, Jan. 5, 2019 8:00 AM - 10:00 AM

Atlanta Marriott Marquis, A705
Hosted By: American Economic Association
  • Chair: Laurence Ball, Johns Hopkins University

Employment Hysteresis from the Great Recession

Danny Yagan
,
University of California-Berkeley

Abstract

This paper uses U.S. local areas as a laboratory to test whether the Great Recession depressed 2015 employment. In full-population longitudinal data, I find that exposure to a 1-percentage-point-larger 2007-2009 local unemployment shock caused working-age individuals to be 0.4 percentage points less likely to be employed at all in 2015, evidently via labor force exit. These shocks also increased 2015 income inequality. General human capital decay and persistently low labor demand each rationalize the findings better than lost job-specific rents, lost firm-specific human capital, or reduced migration. Simple extrapolation suggests the recession caused most of the 2007-2015 age-adjusted employment decline.

Some Like It Hot: Assessing Longer-Term Labor Market Benefits from a High-Pressure Economy

Julie Hotchkiss
,
Federal Reserve Bank of Atlanta
Robert Moore
,
Georgia State University

Abstract

This paper explores the evidence for positive hysteresis in the labor market. Using data from the National Longitudinal Surveys of Youth, we find that negative labor market outcomes during high-unemployment periods are mitigated by exposure to a high-pressure economy during the preceding expansion. Breaking total exposure into average intensity and duration suggests that these two dimensions have differing impacts depending on the outcome. Additionally, benefits are typically only statistically significantly different from no exposure for only a relatively few demographic groups.

Hysteresis in Employment Among Disadvantaged Workers

Bruce Fallick
,
Federal Reserve Bank of Cleveland
Pawel Krolikowski
,
Federal Reserve Bank of Cleveland

Abstract

We examine hysteresis in employment-to-population ratios among less-educated men using state-level data. Results from dynamic panel regressions indicate a moderate degree of hysteresis: The effects of past employment rates on subsequent employment rates can be substantial but essentially dissipate within three years. This finding is robust to a number of variations. We find no substantial asymmetry in the persistence of high vs. low employment rates. The cumulative effect of hysteresis in the business cycle surrounding the 2001 recession was mildly positive, while the effect in the cycle surrounding the 2008–09 recession was, through 2016, decidedly negative. Additional simulations suggest that the employment benefits of temporarily running a “high-pressure” economy are small.
Discussant(s)
Matthew Notowidigdo
,
Northwestern University
Lisa Kahn
,
Yale University
Jesse Rothstein
,
University of California-Berkeley
Daniel Aaronson
,
Federal Reserve Bank of Chicago
JEL Classifications
  • E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy
  • J2 - Demand and Supply of Labor