Okun Revisited: Who Benefits Most from a Strong Economy

Aaronson, Stephanie; Daly, Mary C.; Wascher, William L.; Wilcox, David W.

doi:10.17016/FEDS.2019.072

Working Paper

Okun Revisited: Who Benefits Most from a Strong Economy

Abstract: Previous research has shown that the labor market experiences of less advantaged groups are more cyclically sensitive than the labor market experiences of more advantaged groups; in other words, less advantaged groups experience a high-beta version of the aggregate fluctuations in the labor market. For example, when the unemployment rate of whites increases by 1 percentage point, the unemployment rates of African Americans and Hispanics rise by well more than 1 percentage point, on average. This behavior is observed across other labor-market indicators, and is roughly reversed when the unemployment rate declines. We update this work to include the post-Great Recession period and extend the analysis to consider whether these high-beta relationships change when the labor market is especially tight. We find suggestive evidence that when the labor market is already strong, a further increment of strengthening provides a modest extra benefit to some disadvantaged groups, relative to earlier in the labor-market cycle. In addition, we provide preliminary evidence suggesting that these gains are somewhat persistent for African Americans and women.

Keywords: Business Cycles; Inequality; Labor supply and demand; Racial Disparities; Unemployment;

https://doi.org/10.17016/FEDS.2019.072