Jobless Recoveries: Stagnation or Structural Change?

Abstract

Within the existing literature a number of competing explanations for jobless recoveries have emerged. On the one hand there is evidence of dynamic structural change including offshoring/globalization and technological advances that are resulting in the loss of middle‐skill (routine) employment. Other studies emphasize a less dynamic economy with slower growth, reduced labor market fluidity, a decline in startup activity, and even economic stagnation. This study exploits variation among U.S. states to assess the degree that stagnation and/or important structural changes in the economy contribute to the recent phenomenon of jobless recoveries. We find support for both the stagnation and structural change theories of jobless recoveries. On the stagnation side, we find evidence that lower startup rates are a significant predictor of jobless recoveries. We also find evidence that links dynamic structural change to the jobless recovery phenomenon. More specifically states experiencing a long‐run downward trend in the share of routine employment are more likely to experience a jobless recovery. Our results are consistent with the polarization theory where routine‐replacing technological advances permanently reduce demand for middle‐skill labor, thus contributing to jobless recoveries. (JEL E32, E24)

When and for Whom Does Growth Becomes Jobless?

“…One prominent concern that garnered considerable scrutiny was whether the connection between employment and economic cycles had weakened during periods of recovery. As a result, numerous economists have coined the term "jobless growth" (El-Hamadi et al 2017;Dahal and Rai 2019;Mihajlović and Marjanović 2021;Varghese and Khare 2021;Haider et al 2023) or "jobless recovery" (ILO 2014;Berger 2012;Burger and Schwartz 2018;Elroukh et al 2020;Klinger and Weber 2020) to describe the period spanning from 2009 to 2013.…”

“…On one side, some explanations underscore a less vibrant economy characterized by slow growth, decreased labor market flexibility, a drop-in startup activity, and even economic stagnation (Eichengreen and Gupta 2011). On the other hand, alternative studies underscore the significance of dynamic structural shifts, such as offshoring and technological advancements that replace middle-skill (routine) labor (Wolnicki et al 2006;Burger and Schwartz 2018).…”

Task Content and Job Losses in the Great Lockdown

“…Foote & Ryan (2015) further show that middle-skill workers are predominantly employed in volatile sectors. 3 While it is too early to tell what the implications of COVID-19 are, let alone whether the short-term effects of the shock will be persistent, a corollary of that research could be that structural changes in employment also take place primarily in recessions (Burger & Schwartz 2018). For instance, it is less costly (in the sense of foregone sales) to implement organizational changes in downturns and new firms are likely to operate with newer technology vintages than older firms.…”