Hiring, Job Loss, and the Severity of Recessions

By Faberman, R. Jason | Business Review (Federal Reserve Bank of Philadelphia), Summer 2010 | Go to article overview

Hiring, Job Loss, and the Severity of Recessions


Faberman, R. Jason, Business Review (Federal Reserve Bank of Philadelphia)


What drives movements in the unemployment rate during expansions and recessions? Obviously, much of it is driven by the hiring and firing decisions of individual businesses. When businesses hire more workers than they lose (whether those workers leave voluntarily or involuntarily), employment expands and the unemployment rate tends to go down. When businesses lose more workers than they hire, employment contracts and the unemployment rate rises. This does not mean, though, that boom times are driven entirely by hiring and recessions are driven entirely by job losses. For example, if firms cut back sharply on their hiring with little change in the number of workers they lose, the unemployment rate would rise because people would find it harder to find new work.

[ILLUSTRATION OMITTED]

Whether a recession is driven by large job losses or weak hiring will greatly affect the composition and consequences of the unemployed and can therefore have important policy implications. Laid-off workers can come from a variety of backgrounds. Oftentimes, these workers lose valuable human capital in the process, especially if the laid-off employees are older, more experienced workers with a lot of job-specific skills. Weak hiring affects all individuals looking for work: those who were recently laid off, those just entering the workforce (e.g., recent graduates), and those who are currently employed but want a new job. Weak hiring implies that there are fewer jobs to apply for, which makes it more difficult for the unemployed to find work.

The recessions of the 1970s and 1980s, as well as the most recent downturn, saw steep declines in employment and sharp increases in unemployment. At the same time, the pace of layoffs was very high but relatively short-lived. In comparison, the fall in employment and the rise in unemployment during the 1990-91 and 2001 recessions were much less severe. During these recessions, there was a moderate rise in job losses but a relatively steep drop in hiring, particularly during the 2001 recession. Furthermore, the 1990-91 and 2001 recessions had declines that persisted well after the official end of the recession. (1)

In academic circles, the contrast in behavior has led to two diverging views on recessions and the labor market. Some economists, such as Robert Hall and Robert Shimer, focus on the more recent downturns and take the view that rising unemployment during recessions is driven by weak hiring and hence a low probability that the unemployed will find a job. Others, such as Shigeru Fujita and Garey Ramey, and Michael Elsby, Ryan Michaels, and Gary Solon, cite the historical evidence and argue that rising unemployment is driven by high rates of job loss.

In reality, the extent to which recessions are times of weak hiring or high job loss depends on the severity of the downturn. Severe recessions are typically characterized by a sharp drop in output and large amounts of job loss, while moderate recessions are characterized by smaller declines in output and relatively weak hiring. These results come about because, at any point in time, there is a distribution of businesses that are expanding, contracting, or keeping their employment steady. A recession is a time when the fraction of businesses that are expanding goes down and the fraction of businesses that are contracting goes up. A severe recession is one in which the shift in this distribution is more dramatic. Furthermore, when businesses expand or contract by a certain amount, they tend to do so with a fairly consistent mix of hiring, quits (voluntary worker separations), and layoffs (involuntary worker separations). Fast-growing businesses tend to have mostly hires, fast-declining businesses tend to have mostly layoffs, and businesses with smaller employment changes tend to have a mix of hiring, quits, and layoffs that occur simultaneously. During a severe recession, the number of businesses with large contractions increases sharply. …

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • A full archive of books and articles related to this one
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Hiring, Job Loss, and the Severity of Recessions
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

    Already a member? Log in now.