Jobless Recovery and Structural Change: A VAR Approach

Abstract

This study uses a Vector Autoregression approach to examine the link between jobless recoveries and the fast employment expansion in finance, health, and education (FHE) sectors. Both reduced-form estimates and impulse responses indicate a negative effect of the expansion on aggregate employment. While the expansion Granger-causes aggregate employment fluctuations, up to 40% of the error variance of those fluctuations can be explained by innovations in the expansion. Moreover, movements in aggregate employment are reduced by 25% when the expansion is accounted for. Therefore, the fast expansion of the FHE sectors is shown to have notably contributed to the onset of jobless recoveries.