Hysteresis in Labor Markets? Evidence from Professional Long-Term Forecasts

John Bluedorn and Daniel Leigh

No 2019/114, IMF Working Papers from International Monetary Fund

Abstract: We explore the long-term impact of economic booms on labor market outcomes using a novel approach based on revisions to professional forecasts over the past 30 years for 34 advanced economies. We find that when employment rises unexpectedly, forecasters typically raise their long-term forecasts of employment by more than one-for-one and also expect a strong rise in labor force participation, suggesting more persistent effects than is traditionally assumed. Economic booms associated with changes in aggregate demand, when inflation is rising and unemployment falling unexpectedly, also come with persistent long-term effects on expected employment and labor force participation, suggesting positive hysteresis. Our forecast evaluation tests indicate that forecasters are, on average, unbiased in their assessment of these positive, persistent effects.

Keywords: WP; labor market; labor market variable; Hysteresis; business cycles; monetary policy; labor market fluctuation; current-period employment; employment revision; labor-market persistence; labor market outcome; Employment; Labor markets; Unemployment rate; Labor force; Labor force participation; Global (search for similar items in EconPapers)
Pages: 22
Date: 2019-05-23
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (10)

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