Recessions and Local Labor Market Hysteresis

Brad Hershbein and Bryan Stuart

No 20-325, Upjohn Working Papers from W.E. Upjohn Institute for Employment Research

Abstract: This paper studies the effects of each U.S. recession since 1973 on local labor markets. We find that recession-induced declines in employment are permanent, suggesting that local areas experience permanent declines in labor demand relative to less-affected areas. Population also falls, primarily due to reduced in-migration, but by less than employment. As a result, recessions generate long-lasting hysteresis: persistent decreases in the employment-to-population ratio and earnings per capita. Changes in the composition of workers explain less than half of local hysteresis. We further show that finite sample bias in vector autoregressions leads to artificial convergence, which can explain why some previous work finds no evidence of hysteresis in employment rates.

Keywords: recessions; hysteresis; demand shocks; local labor markets; event study (search for similar items in EconPapers)
JEL-codes: I24 I26 J24 J31 (search for similar items in EconPapers)
Date: 2020-04
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Downloads: (external link)
https://research.upjohn.org/cgi/viewcontent.cgi?ar ... ext=up_workingpapers (application/pdf)
This material is copyrighted. Permission is required to reproduce any or all parts.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:upj:weupjo:20-325

Access Statistics for this paper

More papers in Upjohn Working Papers from W.E. Upjohn Institute for Employment Research 300 S. Westnedge Ave. Kalamazoo, MI 49007 USA. Contact information at EDIRC.
Bibliographic data for series maintained by ().