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Hysteresis in Employment among Disadvantaged Workers

Bruce Fallick () and Pawel Krolikowski ()

No 1801, Working Papers (Old Series) from Federal Reserve Bank of Cleveland

Abstract: We examine hysteresis in employment-to-population ratios among less-educated men using state-level data. Results from dynamic panel regressions indicate a moderate degree of hysteresis: The effects of past employment rates on subsequent employment rates can be substantial but essentially dissipate within three years. This finding is robust to a number of variations. We find no substantial asymmetry in the persistence of high vs. low employment rates. The cumulative effect of hysteresis in the business cycle surrounding the 2001 recession was mildly positive, while the effect in the cycle surrounding the 2008–09 recession was, through 2016, decidedly negative. Additional simulations suggest that the employment benefits of temporarily running a “high-pressure” economy are small.

Keywords: hysteresis; employment persistence; labor market tightness; unemployment (search for similar items in EconPapers)
JEL-codes: E24 J21 J24 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-lma and nep-mac
Date: 2018-02-06
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DOI: 10.26509/frbc-wp-201801

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