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U. S. regional business cycles and the natural rate of unemployment

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  • Howard J. Wall
  • Gylfi Zoega

Abstract

Estimates of the natural rate of unemployment are important in many macroeconomic models used by economists and policy advisors. This paper shows how such estimates might benefit from closer attention to regional developments. Regional business cycles do not move in lockstep, and greater dispersion among regions can affect estimates of the natural rate of unemployment. There is microeconomic evidence that employers are more reluctant to cut wages than they are to raise them. Accordingly, the relationship between wage inflation and vacancies is convex: An increase in vacancies raises wage inflation at an increasing rate. The authors? empirical results are consistent with this and indicate that, if all else had remained constant, the reduction in the dispersion of regional unemployment rates between 1982 and 2000 would have meant a 2-percentage-point drop in the natural rate of aggregate unemployment.

Suggested Citation

  • Howard J. Wall & Gylfi Zoega, 2004. "U. S. regional business cycles and the natural rate of unemployment," Review, Federal Reserve Bank of St. Louis, vol. 86(Jan), pages 23-32.
    • Handle: RePEc:fip:fedlrv:y:2004:i:jan:p:23-32:n:v.86no.1
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    Cited by:

    1. Luca Bindelli, 2005. "Systematic monetary policy and persistence," Cahiers de Recherches Economiques du Département d'économie 05.07, Université de Lausanne, Faculté des HEC, Département d’économie.
    2. Kumar, Anil & M. Orrenius, Pia, 2016. "A closer look at the Phillips curve using state-level data," Journal of Macroeconomics, Elsevier, vol. 47(PA), pages 84-102.
    3. Strauss, Jack, 2013. "Does housing drive state-level job growth? Building permits and consumer expectations forecast a state’s economic activity," Journal of Urban Economics, Elsevier, vol. 73(1), pages 77-93.
    4. Bande, Roberto & Karanassou, Marika, 2011. "The NRU and the Evolution of Regional Disparities in Spanish Unemployment," IZA Discussion Papers 5838, Institute of Labor Economics (IZA).
    5. Sharlywest Uwabor Eboigbe & Innocent Okwuosa, 2018. "Test of Linkage between Governance Style and National Economic Indices," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 9(1), pages 226-238, January.
    6. Owyang, Michael T. & Rapach, David E. & Wall, Howard J., 2009. "States and the business cycle," Journal of Urban Economics, Elsevier, vol. 65(2), pages 181-194, March.
    7. Ryan Herzog, 2013. "Using state level employment thresholds to explain Okun’s Law," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 2(1), pages 1-26, December.
    8. Hiroshi Fujiki & Howard J. Wall, 2006. "Controlling for geographic dispersion when estimating the Japanese Phillips curve," Working Papers 2006-057, Federal Reserve Bank of St. Louis.
    9. Vassilis Monastiriotis, 2008. "The Emergence of Regional Policy in Bulgaria: regional problems, EU influences and domestic constraints," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 15, Hellenic Observatory, LSE.
    10. Ryan W Herzog, 2013. "An Analysis of Okun's Law, the Natural Rate, and Voting Preferences for the 50 States," Economics Bulletin, AccessEcon, vol. 33(4), pages 2504-2517.
    11. Behera, Harendra & Wahi, Garima & Kapur, Muneesh, 2017. "Phillips Curve Relationship in India: Evidence from State-Level Analysis," MPRA Paper 80737, University Library of Munich, Germany.

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