Jobless Recoveries Research Articles

Do unemployment benefit extensions explain the emergence of jobless recoveries?

Countercyclical unemployment benefit extensions in the United States act as a propagation mechanism, contributing to the high persistence of unemployment following recent recessions, as well as the weak correlation between unemployment and productivity. We show this by modifying an otherwise standard frictional model of the labor market to incorporate a stochastic and state-dependent process for unemployment insurance estimated on US data. Accounting for movements in both productivity and unemployment insurance, our calibrated model is consistent with post-war labor-market dynamics. It explains the emergence of jobless recoveries in the 1990s, the low correlation between unemployment and productivity, and the apparent shifts in the Beveridge curve following recessions.

Jobless recoveries and time variation in labor markets

We study the nature of changes in the relationship between the labor market and output by using a broader set of labor market variables and a flexible time-varying-parameter vector autoregression model with stochastic volatility (TVP-SV). Overall, the TVP-SV model fits the labor market data well and has good predictive performance. We find heterogeneity both in the timing and the type of changes in the relationship between labor market variables and output. We find evidence that the relationship between output and employment growth, hours, vacancies, and wages has changed over time, with employment, wages, and vacancies being less responsive over time. In contrast, the responses of hours and part-time employment to output have become stronger over time, indicating a shift towards utilization of the intensive margin and towards utilizing more flexible labor inputs.

Are jobless recoveries history? Okun’s law, insufficient stimulus, and slow recoveries

Are jobless recoveries history? Okun’s law, insufficient stimulus, and slow recoveries

Testing Okun’s Law for Turkey (1923-2019)

This study tests Okun’s law for Turkey using annual data gathered for almost a century (1923–2019). In contrast to the rest of the literature focusing on a linear relationship between unemployment and output levels, we argue for a cointegrating nonlinear autoregressive distributed lag (NARDL) model. We find clear evidence of an asymmetric cointegrating relationship between unemployment and output as well as asymmetric short-run impacts. Interestingly, these relationships are positive. Asymmetric cumulative dynamic multipliers confirm the results, which can be explained by the structural features of the Turkish unemployment such as the high female and youth unemployment rates, a large agricultural sector, high firing costs, and the high level of informal employment as well as hysteresis. Therefore, effective labour market reforms should consider asymmetries in the long-run unemployment and output relationship as well as asymmetries in their short-run impacts in order to handle jobless recoveries in Turkey.

The jobless recovery after the 1980–1981 British recession

Extensive research has been conducted on the concept of jobless recoveries and their potential causes, primarily focused on the United States from the 1990s. This paper finds that the prolonged employment downturn following the brief 1980–1981 recession in Britain qualifies as a jobless recovery and then investigates possible contributing factors: labor reallocation across industries, regional employment changes, and job polarization. The United States, which did not have a jobless recovery from the early 1980s recession, is taken as a comparison case. I find that the leading candidate explanation for this jobless recovery is the reallocation of labor across industries. This suggests an important role for structural change in the early 1980s recession and in jobless recoveries more generally.

Human capital heterogeneity of the unemployed and jobless recoveries

The jobless recovery enigma remains largely unsolved. As a special case of broader unemployment, the term “jobless recovery” describes an economic recovery where output recovers—and even expands—yet employment growth remains anemic. While the effects of these prolonged recoveries are significant—from increased crime to a lifetime reduction in wages—they are not well understood. Building on the insights of labor market matching models that incorporate heterogeneity among workers, this paper sheds light on jobless recoveries, developing a first-of-its-kind index of human capital heterogeneity for the unemployed, and testing that index using of a Structural Vector Autoregression. I demonstrate that the extent to which unemployed human capital is heterogeneous and specific, rather than homogeneous and general, plays a key and under-appreciated role in the labor market; increases in human capital heterogeneity can account for between one-quarter to three-quarters of the joblessness of the past three recoveries in the pre-COVID era.

Jobless Recoveries and Time Variation in Labor Markets

Jobless Recoveries and Time Variation in Labor Markets

A High-Resolution Lead-Lag Analysis of US GDP, Employment, and Unemployment 1977–2021: Okun’s Law and the Puzzle of Jobless Recovery

Okun’s law is formulated as the ratio between GDP and unemployment (UE): β = f(GDP/UE). It is used to investigate the relations between output and labor input across regions or across business cycles. Based on results by James D. Hamilton we replaced the United States UE with employment (EM) for the years 1977 to 2021 and examined how employment changed relative to output during recessions and recoveries. We found that (i) EM was leading GDP before and lagging GDP after all recessions, except the 2020 recession. (ii) The βE(9) = GDP/EM for rolling ordinary linear regression over 9 months decreases just after a recession and then recovers over 2- to 4-year periods. (iii) The two series showing that EM → GDP and βE(9) < 0.5 coincided in the 34 months that partly preceded and partly followed five of six NBER recession dates, providing a probability of ≈0.0002 to coincide with the recessions by chance. Thus, the two series may be used to support forecasts of coming recessions. Since EM precedes GDP and labor productivity declines before recessions, a policy recommendation for avoiding “jobless recovery” is that employment should not increase more rapidly than the real economy.

Worker-Firm Screening and the Business Cycle

There has been a substantial body of work modeling the co-movement of employment, vacancies and output over the business cycle. This paper builds on this literature, and informed by empirical investigation, models worker and firm search and hiring behavior in a more systematic manner. Consistent with empirical findings, for a given vacancy, a firm receives many applicants, and chooses their preferred candidate amongst the set. Similarly, workers in both unemployment and employment, can evaluate many open vacancies simultaneously and choose to which they make an application. Business cycles are propagated through turbulence in the economy. Structural parameters of the model are estimated on U.S. data, targeting aggregate time series. Consistent with data, the model is able to generate large volatility in unemployment,vacancies, and worker ows across jobs and employment state. Further, it provides a theoretical mechanism for the shift in the Beveridge curve after the 2008 recession, a phenomenon often referred to as the jobless recovery. That is, persistently low employment after the recession, despite output per worker and vacancies having returned to pre-crisis levels.

Collateral Constraints, Wage Rigidity, and Jobless Recoveries

Abstract The Great Recession has drawn attention to the importance of macro-financial linkages. In this paper I explore the joint role of imperfections in labor and financial markets for the cyclical adjustment of the labor market. I show that jobless recoveries emerge when, upon exiting a recession, firms are faced with deteriorating credit conditions. On the financial side, collateral requirements affect the cost of borrowing for firms. On the employment side, hiring frictions and wage rigidity increase the need for credit, making the binding collateral constraint more relevant. In a general equilibrium business cycle model with search and matching frictions, I illustrate that tightening credit conditions calibrated from data negatively affect employment adjustments during recovery periods. Wage rigidity substantially amplifies this mechanism, generating empirically plausible fluctuations in employment and output.

The heterogeneous impact of monetary policy on the US labor market

We empirically investigate the role of central banks in the context of heterogeneous labor markets, jobless recoveries and job polarization. Specifically, we estimate the effect of monetary policy on the US labor market using disaggregated time series based on large scale survey data. The impact of interest rate changes on unemployment in 32 occupation groups is explored in a Bayesian factor-augmented vector autoregression framework. The results suggest largely heterogeneous impacts across various occupation groups. This heterogeneity can be explained by differential task profiles of the workers in their respective occupations. Workers with tasks that are easily automated or offshored as well as workers at the bottom of the skill distribution are disproportionately affected following a monetary policy shock. This implies that labor market participants that are highly vulnerable to structural developments such as skill-biased technological change and the globalization of labor markets are also most sensitive to conventional monetary policy measures. From a policy perspective, we conclude that central banks are unlikely to be able to take on a stabilizing role in the context of labor market polarization.

A look at jobless recoveries in G7 countries

We study changes in the plucking behavior of employment growth, as well as changes in its relationship with the output cycle in the G7 countries. Using both revised and real-time data, we consider several popular measures of the output cycle. For most countries, we see significant evidence in favor of structural changes in the response coefficients of employment growth to its own gap, suggesting much slower recoveries in labor markets, consistent with the jobless recoveries hypothesis. However, we also find evidence in favor of heterogeneity across countries, both in the responses of employment to employment gaps and in the responses of employment to the output cycle.

Jobless recoveries after financial crises (and the key role of the extensive margin of employment)

Alors que plusieurs années se sont écoulées depuis les chocs économiques de 2008 et 2012, les taux d’emploi jugés trop faibles persistent en dépit de la reprise d’autres indicateurs économiques, tels que le PIB. Ce phénomène a été nommé “reprise sans emploi” dans la littérature. Nous montrons que, non seulement il est plus difficile pour les chômeurs de retrouver un emploi, mais aussi que les travailleurs tendent à prester plus d’heures. Pour comprendre ce phénomène, nous adoptons successivement le point de vue de l’employeur et de l’employé quant à la détermination du temps de travail optimal. Nous montrons d’abord que les employeurs font face à d’importants coûts fixes du travail. Dans ce contexte, les employeurs ont d’importants incitants à augmenter le temps de travail afin de recouvrir ces coûts fixes, et ce même si un temps de travail plus long rend les travailleurs de moins en moins productifs. Nous montrons enfin que face à un choc négatif les travailleurs ont un incitant fort à augmenter leur effort au travail pour se prémunir d’un licenciement. Nous étudions de quelle manière cette augmentation de l’effort, qui peut prendre la forme de prestation d’heures supplémentaires non comptabilisées, affecte le niveau d’emploi général.

A Look at Jobless Recoveries in G7 Countries

We study changes in the plucking behavior of employment growth, as well as changes in its relationship with the output cycle in the G7 countries. Using both revised and real-time data, we consider several popular measures of the output cycle. For most countries, we see significant evidence in favor of structural changes in the response coefficients of employment growth to its own gap, suggesting much slower recoveries in labor markets, consistent with the jobless recoveries hypothesis. However, we also find evidence in favor of heterogeneity across countries, both in the responses of employment to employment gaps and in the responses of employment to the output cycle.

Job Polarization and Jobless Recoveries

Job polarization refers to the shrinking share of employment in middle-skill, routine occupations experienced over the past 35 years. Jobless recoveries refers to the slow rebound in aggregate employment following recent recessions despite recoveries in aggregate output. We show how these two phenomena are related. First, essentially all employment loss in routine occupations occurs in economic downturns. Second, jobless recoveries in the aggregate can be accounted for by jobless recoveries in the routine occupations that are disappearing.

The cyclical component of labor market polarization and jobless recoveries in the US

Based on quarterly occupation-level data from the US Current Population Survey for 1976–2013, we exploit common cyclical employment dynamics to identify two clusters of occupations that roughly correspond to the widely discussed notion of “routine” and “non-routine” jobs. After decomposing the cyclical dynamics into a cluster-specific (“structural”) and an occupation-specific (“idiosyncratic”) component, we detect significant structural breaks in the systematic dynamics of both clusters around 1990. We show that, absent these breaks, employment in the three “jobless recoveries” since 1990 would have recovered significantly more strongly than observed in the data, even after controlling for observed idiosyncratic shocks.

GDP-employment decoupling in Germany

This paper investigates the time-varying relationship between German output and employment growth, in particular their decoupling in recent years. We estimate a correlated unobserved components model that allows for persistent and cyclical time variation in the employment-GDP linkage as well as an additional employment component beyond the one linked to GDP. Controlling for the latter yields a more precise classification of what is a jobless recovery or a labour hoarding recession. We find that the comovement of employment and GDP has loosened permanently since the Great Recession while the comovement with other variables than GDP has become tighter. The decoupling goes hand in hand with the change of the sectoral composition of the economy, especially the rise of the service sector. Beyond that, high labour market tightness and at the same time high labour supply carried recent employment growth. The industry mix, wages and working time had a smaller influence.

Unemployment Cycles

The labor market by itself can create cyclical outcomes, even in the absence of exogenous shocks. We propose a theory in which the search behavior of the employed has profound aggregate implications for the unemployed. There is a strategic complementarity between active on-the-job search and vacancy posting by firms, which leads to multiple equilibria: in the presence of sorting, active on-the-job search improves the quality of the pool of searchers. This encourages vacancy posting, which in turn makes costly on-thejob search more attractive—a self-fulfilling equilibrium. The model provides a rationale for the Jobless Recovery, the outward shift of the Beveridge curve during the boom and for pro-cyclical frictional wage dispersion. Central to the model’s mechanism is the fact that the employed crowd out the unemployed when on-the-job search picks up during recovery. We also illustrate this mechanism in a stylized calibration exercise. (JEL E24, E32, J63, J64)

Globalization and jobless recoveries

Slow rebounds in employment have become a salient feature of recoveries from recessions over the past few decades. During this time, U.S. production has become increasingly globalized. In this paper, I provide evidence that offshoring contributes to slow recoveries in labor markets. Using data from the Current Population Survey, I show that employment in offshorable occupations mimics employment in routine occupations, recovering more slowly than other types of occupations. Additionally, I use data from the Bureau of Economic Analysis on activities of multinationals to show that offshoring contributes directly to this phenomenon. I then provide a theoretical framework that rationalizes these observations in the context of a modified growth model.

Jobless recoveries: The interaction between financial and search frictions

This paper establishes a link between labor market frictions and financial market frictions. We argue that this link had large effects on labor market outcomes and helps to explain the jobless recovery. We build a stylized DSGE model that features this channel. We use Bayesian methods to estimate the model on U.S. data. We show that the model with this channel generates a strong internal propagation mechanism, replicates stylized labor market effects of the Great Recession, and, most importantly, creates a jobless recovery. Further, our results show that recessions generated by financial shocks have the largest effect on the efficiency of the labor market compared to demand-side and other supply-side recessions.