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Journal Article
Is the Hot Economy Pulling New Workers into the Labor Force?
Labor force participation among prime-age workers has climbed over the past few years, reversing from the substantial drop during and after the last recession. These gains might suggest that the strength of the job market is pulling people from the sidelines into the labor force. However, analysis that accounts for underlying flows between labor force states shows that, rather than drawing new people in, the hot labor market has instead reduced the number of individuals who are dropping out.
Working Paper
The Effects of Unemployment Benefits on Unemployment and Labor Force Participation: Evidence from 35 Years of Benefits Extensions
This paper presents estimates of the effect of emergency and extended unemployment benefits (EEB) on the unemployment rate and the labor force participation rate using a data set containing information on individuals likely eligible and ineligible for EEB back to the late 1970s. To identify these estimates, we examine how exit rates from unemployment change across different points of the distribution of unemployment duration when EEB is and is not available, controlling for changes in labor demand and demographic characteristics. We find that EEB increased the unemployment rate by about ...
Briefing
Are the Effects of Fiscal Policy Asymmetric?
Economic research on the size of the fiscal multiplier has assumed that the effects of changes in government spending are symmetric ? that is, they influence economic output to the same degree whether the change is an increase or a decrease. Richmond Fed research indicates that this is not the case; the fiscal multiplier does vary according to the direction of the fiscal action and also varies with the stage of the economic cycle. This finding sheds light on likely outcomes of fiscal policies and helps account for inconsistent estimates of the multiplier in the literature.
Working Paper
The ins and outs of forecasting unemployment: Using labor force flows to forecast the labor market
This paper presents a forecasting model of unemployment based on labor force ows data that, in real time, dramatically outperforms the Survey of Professional Forecasters, historical forecasts from the Federal Reserve Board's Greenbook, and basic time-series models. Our model's forecast has a root-mean-squared error about 30 percent below that of the next-best forecast in the near term and performs especially well surrounding large recessions and cyclical turning points. Further, because our model uses information on labor force ows that is likely not incorporated by other forecasts, a ...
Working Paper
Vacancy posting, job separation and unemployment fluctuations
This paper studies the relative importance of the two main determinants of cyclical unemployment fluctuations: vacancy posting and job separation. Using a matching function to model the flow of new jobs, I draw on Shimer's (2007) unemployment flow rates decomposition and find that job separation and vacancy posting respectively account for about 40 and 60 percent of unemployment's variance. When considering higher-order moments, I find that job separation contributes to about 60 percent of unemployment steepness asymmetry, a stylized fact of the jobless rate. Finally, while vacancy posting ...
Journal Article
Can Government Spending Help to Escape Recessions?
A key to designing fiscal policy is understanding how government purchases affect economic output overall. Research suggests that expanding government spending is not very effective at stimulating an economy in normal times. However, in deep downturns when monetary policy is constrained at the zero lower bound, public spending is more potent and can become an effective way to escape a recession.
Working Paper
Understanding the Size of the Government Spending Multiplier: It's in the Sign
The literature on the government spending multiplier has implicitly assumed that an increase in government spending has the same (mirror-image) effect as a decrease in government spending. We show that relaxing this assumption is important to understand the effects of fiscal policy. Regardless of whether we identify government spending shocks from (i) a narrative approach, or (ii) a timing restriction, we find that the contractionary multiplier?the multiplier associated with a negative shock to government spending?is above 1 and even larger in times of economic slack. In contrast, the ...
Journal Article
What’s the Best Measure of Economic Slack?
Different ways of measuring the economy’s unused capacity, or slack, can result in varying inflation forecasts. Estimates suggest that direct measures of labor market tightness, such as the ratio of job vacancies to unemployment or the rate of employee job switching, provide more accurate forecasts than commonly used measures, such as the unemployment rate or the output gap. Recent elevated values of these measures of labor market tightness suggest greater inflation pressure than is implied by the unemployment rate alone.
Working Paper
What drives movements in the unemployment rate? a decomposition of the Beveridge curve
This paper presents a framework to interpret movements in the Beveridge curve and analyze unemployment fluctuations. We decompose the unemployment rate into three main components: (1) a component driven by changes in labor demand--movements along the Beveridge curve and shifts in the Beveridge curve due to layoffs--(2) a component driven by changes in labor supply--shifts in the Beveridge curve due to quits, movements in-and-out of the labor force and demographics--and (3) a component driven by changes in the efficiency of matching unemployed workers to jobs. We find that cyclical movements ...
Journal Article
The Financial Crisis at 10: Will We Ever Recover?
A decade after the last financial crisis and recession, the U.S. economy remains significantly smaller than it should be based on its pre-crisis growth trend. One possible reason lies in the large losses in the economy?s productive capacity following the financial crisis. The size of those losses suggests that the level of output is unlikely to revert to its pre-crisis trend level. This represents a lifetime present-value income loss of about $70,000 for every American.