Academic journal article Atlantic Economic Journal

Jobless Recovery: A Time Series Look at the United States

Academic journal article Atlantic Economic Journal

Jobless Recovery: A Time Series Look at the United States

Article excerpt

Introduction

The phrase "jobless recovery" became popular in the U.S. during the 2000 recession, when it took seven straight quarters of gross domestic product (GDP) growth to result in decreases in the unemployment rate. With the 2008 recession, the phrase found new life in the beginning stages of recovery. The term is actually first found in print in The New York Times during the depression era of the 1930's. (1) One definition of the concept reads "an economic recovery, following a recession, where the economy as a whole improves, but the unemployment rate remains high or continues to increase over a prolonged period of time". (2) In this paper we study jobless recovery as a relative term looking at the relationship of GDP growth and unemployment rates over time. We consider a post-recessionary period as a jobless recovery if the speed at which the rate of unemployment declines is statistically and significantly slower than prior recessions. The statistical evidence found in this paper lends credence to the applicability of the phrase when describing changes in the U.S. labor dynamics over time. We find that as U.S. GDP growth recovers after a recession, the size of decreases in the unemployment rate have lessened over time.

Others have written papers dealing with jobless recovery but without isolating recoveries or looking at the long time series vector auto-regression (VAR) relationship between actual unemployment rates and GDP growth. Groshen and Potter (2003) look at differences in the recovery from the 2001 recession compared to the recovery from the 1990-91 recession and find the summary evidence points to possible structural changes. They find the data suggest an increase in permanent job losses over temporary layoffs and inter-industry relocation of jobs may have created the 2001 jobless recovery. Chinn et al. (2014) also suggest jobless recovery is due in part to structural change. They use employment data going back to 1950 in a non-linear smooth transition error-correction model to ascertain whether the sluggish employment growth is part of a trend or due to specific business cycle factors. They find that U.S. employment in 2012 is about 1.2 million lower than predictions based on the historical co-movement of employment and GDP.

Aaronson et al. (2004) focus on comparisons to the 2001 recession looking at the effects of self-employment on jobless recovery. They use panel data of U.S. state unemployment rates from the Current Population Survey (CPS) back to 1979 to estimate predicted self-employment rates for the periods following the 2001 recession until the fourth quarter of 2004. They find the predicted estimates are well below the actual value for that time frame. They conclude that the joblessness of the recovery after the 2001 recession may be attributed to the temporary nature of the self-employed jobs. If these jobs are indeed temporary in nature, then not until the labor markets recover and real wages rise will there be a shift back from self-employment to employment, keeping unemployment rates persistently high. Jaimovich and Siu (2012) construct a search-and-matching model to show how the disappearance of middle-skill jobs contributes to jobless recovery. They link the disappearance to technological routinization with job polarization concentrated in downturns.

Faberman (2017) addresses jobless recovery using the Business Employment Dynamics (BED) data from the Bureau of Labor Statistics (BLS) covering the period from 1990-2006. He uses flow data to study job creation and job destruction as defined by Davis et al. (2006), again focusing mainly on the recoveries from the 1990-91 and 2001 recessions. Faberman extends his data back to 1947 using the BED and the previous estimates to create generalized method of moments (GMM) predicted estimates of job creation and job destruction. Much in line with the structural breaks found here, Faberman observes the magnitude of job flows began to steadily decline in the 1960's and the volatility of job flows dropped sharply in the mid 1980's. …

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