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Romer revisited: long-term changes in the cyclical sensitivity of unemployment

Author

Listed:
  • John A. James

    (Department of Economics, University of Virginia, USA)

  • Mark Thomas

    (Department of History, University of Virginia, USA)

Abstract

In this paper we employ microeconomic evidence on the unemployment experiences of American males to evaluate the sensitivity of unemployment to business cycle fluctuations in the late nineteenth century as compared to the mid-twentieth century. Our results indicate a substantial decline in the value of the Okun coefficient (from -0.65 to -0.32) between the 1890s and the 1960s. These findings challenge Christina Romer’s interpretation that the measured decline in cyclical volatility of unemployment over the twentieth century was created by improvements in the statistical record. Rather, it was changes in the underlying dynamics of the labor market over the cycle, most notably the transition to procyclical productivity patterns and the shift from an added to a discouraged worker effect among secondary workers, which may be summarized as the development of modern labor market behavior, that account for the declining cyclical sensitivity of employment and the drop in the cyclical volatility of unemployment over the century.

Suggested Citation

  • John A. James & Mark Thomas, 2007. "Romer revisited: long-term changes in the cyclical sensitivity of unemployment," Cliometrica, Journal of Historical Economics and Econometric History, Association Française de Cliométrie (AFC), vol. 1(1), pages 19-44, April.
  • Handle: RePEc:afc:cliome:v:1:y:2007:i:1:p:19-44
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    More about this item

    Keywords

    Cyclical sensitivity of unemployment; Unemployment volatility; Okun’s law;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • N10 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - General, International, or Comparative

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