Recessions and Local Labor Market Hysteresis

Abstract

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.

Divisive jobs: three facets of risk, precarity, and redistribution

“…Moreover, regional differences are accelerated by recessions or influenced by past unemployment, and vacancies may fall differently, even when exposed to the same process, such as routinization (Hershbein and Kahn, 2018;Bartik and Sotherland, 2019). In fact, such effects are persistent on local labor markets generating long-lasting hysteresis (Hershbein and Stuart, 2020), even when workers are identical (Bilal, 2020).…”

Why is Workplace Sexual Harassment Underreported? The Value of Outside Options Amid the Threat of Retaliation

“…Our time period spans 2000 through 2015. This period provides rich variation in exposure to labor demand shocks across geography and industries, as these years include two distinct recessions with strikingly different heterogeneity across states and industries (Hershbein and Stuart, 2020).…”

Isolated States of America: The Impact of State Borders on Mobility and Regional Labor Market Adjustments

“…Regardless of the mechanism behind the empirical pattern, this feature of U.S. internal migration affects the dynamic adjustment of labor markets to local shocks. Following existing methods exploring the economic recovery from the Great Recession (Hershbein and Stuart, 2020), I show that counties at the state border, where this mobility friction is plausibly more binding, see weaker recoveries in employment. Ten years after the initial cyclical shock, employment measures in border counties have recovered approximately 40 percent less than other counties in the same state.…”