Analyzing the Link Between Real GDP and Employment: An Industry Sector Approach

Barbara Sawtelle

Business Economics, 2007, vol. 42, issue 4, 46-54

Abstract: This paper offers insight into the “jobless recovery” phenomenon recently experienced in the U.S. economy by examining industry-sector employment responsiveness to the long-term real GDP expansion occurring during 1991-2001. Two employment models are specified—one using real GDP as the only explanatory variable and the other using real GDP, five additional macroeconomic performance variables, and a time trend as explanatory variables. Monthly data for April 1991–March 2001, and OLSQ regressions are used to derive industry-sector elasticities of employment with respect to real GDP. Empirical results highlight the importance of controlling for non-real GDP macro variables when determining relationships between employment and real GDP. The results identify five industries exhibiting “jobless recovery” characteristics (having negative employment elasticities) and a broad range of employment elasticities across industry categories. The findings may be helpful to business economists modeling their own industry employment and suggest that even during extended periods of real GDP expansion, there may be a case for using industry-specific labor market transition initiatives to assist employment growth.Business Economics (2007) 42, 46–54; doi:10.2145/20070405

Date: 2007
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