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.

The COVID Retirement Boom

“…This includes low-skilled workers and workers who identify as Black, or African American, and Hispanic. Our new finding complements Wolfers' discussion of Aaronson et al (2019) where he shows that disadvantaged groups with higher unemployment rates also tend to have more cyclical unemployment rates. We identify another mechanism where differences in unemployment rates have uneven effects.…”

“…Declines in unemployment naturally result in upward pressures on participation for all groups-including the marginalized ones. 32 See, for example, Clark and Summers (1981) and Aaronson et al (2019), for reiterations of this narrative.…”

The Social Safety Net in the Wake of COVID-19

“…These striking inequalities in the extent of the economic shock across education groups continue through May and June 2020 and are evident for all of the labor market measures. This result-that recessions increase unemployment more for lower education groups than higher education groups-is a recurring feature of U.S. business cycles (Hoynes et al, 2012;Aaronson et al, 2019).…”

Employment hysteresis in the United States during the COVID-19 pandemic

“…Amior and Manning (2018) observe significant hysteresis in the employmentpopulation ratio in the United States at the local (commuting zones) level data. Aaronson et al (2019) use the unemployment and non-participation rates data in the United States. The authors observe that the unemployment rates of black men, white men, and Hispanic women do not follow a unit root process, which is against the validity of the hysteresis hypothesis.…”

“…The findings for black women and Hispanic men are mixed. Aaronson et al (2019) also use non-participation rates, and they find significant unit-roots for each group related to ethnicity and gender.…”