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Space and time in macroeconomic panel data: young workers and state-level unemployment revisited

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  • Christopher L. Foote

Abstract

A provocative paper by Shimer (2001) finds that state-level youth shares and unemployment rates are negatively correlated, in contrast to conventional assumptions about demographic effects on labor markets. This paper updates Shimer's regressions and shows that this surprising correlation essentially disappears when the end of the sample period is extended from 1996 to 2005. This shift does not occur because of a change in the underlying economy during the past decade. Rather, the presence of a cross-sectional (that is, spatial) correlation in the state-level data sharply reduces the precision of the earlier estimates, so that the true standard errors are several times larger than those originally reported. Using a longer sample period and some controls for spatial correlation in the regression, point estimates for the youth-share effect on unemployment are positive and close to what a conventional model would imply. Unfortunately, the standard errors remain very large. The difficulty of obtaining precise estimates with these data illustrates a potential pitfall in the use of regional panel data for macroeconomic analysis.

Suggested Citation

  • Christopher L. Foote, 2007. "Space and time in macroeconomic panel data: young workers and state-level unemployment revisited," Working Papers 07-10, Federal Reserve Bank of Boston.
  • Handle: RePEc:fip:fedbwp:07-10
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    References listed on IDEAS

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    Cited by:

    1. Karahan, Fatih & Rhee, Serena, 2014. "Population aging, migration spillovers, and the decline in interstate migration," Staff Reports 699, Federal Reserve Bank of New York, revised 01 Apr 2017.
    2. Alfred Garloff & Carsten Pohl & Norbert Schanne, 2013. "Do small labor market entry cohorts reduce unemployment?," Demographic Research, Max Planck Institute for Demographic Research, Rostock, Germany, vol. 29(15), pages 379-406, September.
    3. Allegretto, Sylvia & Dube, Arindrajit & Reich, Michael, 2009. "Spatial Heterogeneity and Minimum Wages: Employment Estimates for Teens Using Cross-State Commuting Zones," Institute for Research on Labor and Employment, Working Paper Series qt1x99m65f, Institute of Industrial Relations, UC Berkeley.
    4. Allegretto, Sylvia A., 2013. "Waiting for Change: Is it Time to Increase the $2.13 Subminimum Wage?," Institute for Research on Labor and Employment, Working Paper Series qt3zx9v0zk, Institute of Industrial Relations, UC Berkeley.
    5. de Graaff, Thomas & Arribas-Bel, Daniel & Ozgen, Ceren, 2017. "Demographic Aging and Employment Dynamics in German Regions: Modeling Regional Heterogeneity," IZA Discussion Papers 10734, Institute for the Study of Labor (IZA).
    6. Lee, Lung-fei & Yu, Jihai, 2010. "Estimation of spatial autoregressive panel data models with fixed effects," Journal of Econometrics, Elsevier, vol. 154(2), pages 165-185, February.
    7. Clots-Figueras, Irma, 2011. "Women in politics," Journal of Public Economics, Elsevier, vol. 95(7), pages 664-690.
    8. A. Colin Cameron & Douglas L. Miller, 2010. "Robust Inference with Clustered Data," Working Papers 107, University of California, Davis, Department of Economics.
    9. Gervais, Martin & Jaimovich, Nir & Siu, Henry E. & Yedid-Levi, Yaniv, 2016. "What should I be when I grow up? Occupations and unemployment over the life cycle," Journal of Monetary Economics, Elsevier, vol. 83(C), pages 54-70.
    10. Allegretto, Sylvia & Dube, Arindrajit & Reich, Michael, 2010. "Do Minimum Wages Really Reduce Teen Employment? Accounting for Heterogeneity and Selectivity in State Panel Data," Institute for Research on Labor and Employment, Working Paper Series qt7jq2q3j8, Institute of Industrial Relations, UC Berkeley.
    11. Bleemer, Zachary & Brown, Meta & Lee, Donghoon & Strair, Katherine & Van der Klaauw, Wilbert, 2017. "Echoes of rising tuition in students’ borrowing, educational attainment, and homeownership in post-recession America," Staff Reports 820, Federal Reserve Bank of New York.
    12. Zhang, Yuanqing & Sun, Yanqing, 2015. "Estimation of partially specified dynamic spatial panel data models with fixed-effects," Regional Science and Urban Economics, Elsevier, vol. 51(C), pages 37-46.
    13. Bester, C. Alan & Conley, Timothy G. & Hansen, Christian B., 2011. "Inference with dependent data using cluster covariance estimators," Journal of Econometrics, Elsevier, vol. 165(2), pages 137-151.
    14. Lee, Lung-fei & Yu, Jihai, 2010. "Some recent developments in spatial panel data models," Regional Science and Urban Economics, Elsevier, vol. 40(5), pages 255-271, September.

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    Unemployment;

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