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The labor market in the Great Recession: an update
Since the end of the Great Recession in mid-2009, the unemployment rate has recovered slowly, falling by only one percentage point from its peak. We find that the lackluster labor market recovery can be traced in large part to weakness in aggregate demand; only a small part seems attributable to increases in labor market frictions. This continued labor market weakness has led to the highest level of long-term unemployment in the U.S. in the postwar period, and a blurring of the distinction between unemployment and nonparticipation. We show that flows from nonparticipation to unemployment are ...
The Decline of the U.S. Labor Share
Over the past quarter century, labor?s share of income in the United States has trended downwards, reaching its lowest level in the postwar period after the Great Recession. Detailed examination of the magnitude, determinants and implications of this decline delivers five conclusions. First, around one third of the decline in the published labor share is an artifact of a progressive understatement of the labor income of the self-employed underlying the headline measure. Second, movements in labor?s share are not a feature solely of recent U.S. history: The relative stability of the aggregate ...
On the Importance of the Participation Margin for Market Fluctuations
Conventional analyses of cyclical fluctuations in the labor market ascribe a minor role to the labor force participation margin. In contrast, a flows-based decomposition of the variation in labor market stocks reveals that transitions at the participation margin account for around one-third of the cyclical variation in the unemployment rate. This result is robust to adjustments of data for spurious transitions, and for time aggregation. Inferences from conventional, stocks-based analyses of labor force participation are shown to be subject to a stock-flow fallacy, neglecting the offsetting ...
The labor market in the Great Recession
This paper documents the adjustment of the labor market during the recession, and places it in the broader context of previous postwar downturns. What emerges is a picture of labor market dynamics with three key recurring themes: 1. From the perspective of a wide range of labor market outcomes, the 2007 recession represents the deepest downturn in the labor market in the postwar era. 2. Until recently, the nature of labor market adjustment in the current recession has displayed a notable resemblance to that observed in past severe downturns. 3. During the latter half of 2009, however, the ...
The Aggregate Effects of Labor Market Frictions
Labor market frictions are able to induce sluggish aggregate employment dynamics. However, these frictions have strong implications for the source of this propagation: They distort the path of aggregate employment by impeding the flow of labor across firms. For a canonical class of frictions, we show how observable measures of such flows can be used to assess the effect of frictions on aggregate employment dynamics. Application of this approach to establishment microdata for the United States reveals that the empirical flow of labor across firms deviates markedly from the predictions of ...
Replacement hiring—recruitment that seeks to replace positions vacated by workerswho quit—plays a central role in establishment dynamics. We document thisphenomenon using rich microdata on U.S. establishments, which frequently report nonet change in their employment, often for years at a time, despite facing substantial grossturnover in the form of quits. We propose a model in which replacement hiring is drivenby the presence of a putty-clay friction in the production structure of establishments.Replacement hiring induces a novel positive feedback channel through which an initialrise in ...