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Post-recession US Employment through the Lens of a Non-linear Okun’s law

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  • Menzie D. Chinn
  • Laurent Ferrara
  • Valérie Mignon

Abstract

This paper aims at investigating the relationship between employment and GDP in the United States. We disentangle trend and cyclical employment components by estimating a non-linear Okun’s law based on a smooth transition error-correction model that simultaneously accounts for long-term relationships between growth and employment and short-run instability over the business cycle. Our findings based on out-of-sample conditional forecasts show that, since the exit of the 2008-09 recession, US employment is on average around 1% below the level implied by the long run output-employment relationship, meaning that about 1.2 million of the trend employment loss cannot be attributed to the identified cyclical factors.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19047.

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Date of creation: May 2013
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Handle: RePEc:nbr:nberwo:19047

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  1. Benati, Luca, 2006. "Drift and Breaks in Labour Productivity," CEPR Discussion Papers 5801, C.E.P.R. Discussion Papers.
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  16. Owyang, Michael T. & Sekhposyan, Tatevik, 2012. "Okun’s law over the business cycle: was the great recession all that different?," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 399-418.
  17. Marcello M. Estevão & Evridiki Tsounta, 2011. "Has the Great Recession Raised U.S. Structural Unemployment?," IMF Working Papers 11/105, International Monetary Fund.
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  20. Terasvirta, T & Anderson, H M, 1992. "Characterizing Nonlinearities in Business Cycles Using Smooth Transition Autoregressive Models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 7(S), pages S119-36, Suppl. De.
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Cited by:
  1. Jon D. Wisman & Aaron Pacitti, 2013. "Ending the Crisis With Guaranteed Employment and Retraining," Working Papers 2013-12, American University, Department of Economics.

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