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Okun Revisited: Who Benefits Most from a Strong Economy

Author

Listed:
  • Stephanie Aaronson
  • Mary C. Daly
  • William L. Wascher
  • David W. Wilcox

Abstract

Previous research has shown that the labor market experiences of less advantaged groups are more cyclically sensitive than the labor market experiences of more advantaged groups; in other words, less advantaged groups experience a high-beta version of the aggregate fluctuations in the labor market. For example, when the unemployment rate of whites increases by 1 percentage point, the unemployment rates of African Americans and Hispanics rise by well more than 1 percentage point, on average. This behavior is observed across other labor-market indicators, and is roughly reversed when the unemployment rate declines. We update this work to include the post-Great Recession period and extend the analysis to consider whether these high-beta relationships change when the labor market is especially tight. We find suggestive evidence that when the labor market is already strong, a further increment of strengthening provides a modest extra benefit to some disadvantaged groups, relative to earlier in the labor-market cycle. In addition, we provide preliminary evidence suggesting that these gains are somewhat persistent for African Americans and women.

Suggested Citation

  • Stephanie Aaronson & Mary C. Daly & William L. Wascher & David W. Wilcox, 2019. "Okun Revisited: Who Benefits Most from a Strong Economy," Finance and Economics Discussion Series 2019-072, Board of Governors of the Federal Reserve System (U.S.).
  • Handle: RePEc:fip:fedgfe:2019-72
    DOI: 10.17016/FEDS.2019.072
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    File URL: https://www.federalreserve.gov/econres/feds/files/2019072pap.pdf
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    References listed on IDEAS

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    Cited by:

    1. Janice C. Eberly & James H. Stock & Jonathan H. Wright, 2019. "The Federal Reserve’s Current Framework for Monetary Policy: A Review and Assessment," NBER Working Papers 26002, National Bureau of Economic Research, Inc.

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    Keywords

    Business Cycles; Inequality; Labor supply and demand; Racial Disparities; Unemployment;
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