Romer revisited: long-term changes in the cyclical sensitivity of unemployment
AbstractIn 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.
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Bibliographic InfoArticle provided by Association Française de Cliométrie (AFC) in its journal Cliometrica, Journal of Historical Economics and Econometric History.
Volume (Year): 1 (2007)
Issue (Month): 1 (April)
Cyclical sensitivity of unemployment; Unemployment volatility; Okun’s law;
Find related papers by 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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