NBER

Employment Hysteresis from the Great Recession

Danny Yagan

Bibliographic Information

NBER Working Paper No. 23844
Issued in September 2017, Revised in August 2018
NBER Program(s):EFG, LS, PE

This paper was revised on August 17, 2018

Available Formats

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.

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