Recessions and local labor market hysteresis

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Upjohn Institute Working Paper ; No. 20-325

Classification and Topics

• Classification: Wirtschaft ; Education and Inequality ; Returns to Education ; Human Capital; Skills; Occupational Choice; Labor Productivity ; Wage Level and Structure; Wage Differentials
• Subject: recessions ; hysteresis ; demand shocks ; local labor markets ; event study

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Hershbein, Brad ; Stuart, Bryan A.
• Event: Veröffentlichung
• (who): W.E. Upjohn Institute for Employment Research
• (where): Kalamazoo, MI
• (when): 2020

Further information

• DOI: doi:10.17848/wp20-325
• Handle: http://hdl.handle.net/10419/228428
• Last update: 10.03.2025, 11:45 AM CET