IDEAS home Printed from https://ideas.repec.org/p/fip/fedgfe/2019-72.html

Some searches may not work properly. We apologize for the inconvenience.

   My bibliography  Save this paper

Okun Revisited: Who Benefits Most from a Strong Economy

Author

Listed:

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
    as

    Download full text from publisher

    File URL: https://www.federalreserve.gov/econres/feds/files/2019072pap.pdf
    Download Restriction: no
    File URL: https://libkey.io/10.17016/FEDS.2019.072?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Kahn, Lisa B., 2010. "The long-term labor market consequences of graduating from college in a bad economy," Labour Economics, Elsevier, vol. 17(2), pages 303-316, April.
    2. Ayako Kondo, 2015. "Differential effects of graduating during a recession across gender and race," IZA Journal of Labor Economics, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 4(1), pages 1-24, December.
    3. Danny Yagan, 2019. "Employment Hysteresis from the Great Recession," Journal of Political Economy, University of Chicago Press, vol. 127(5), pages 2505-2558.
    4. Steven J. Davis & John Haltiwanger, 1990. "Gross Job Creation and Destruction: Microeconomic Evidence and Macroeconomic Implications," NBER Chapters, in: NBER Macroeconomics Annual 1990, Volume 5, pages 123-186, National Bureau of Economic Research, Inc.
    5. Harris Dellas & Plutarchos Sakellaris, 2003. "On the cyclicality of schooling: theory and evidence," Oxford Economic Papers, Oxford University Press, vol. 55(1), pages 148-172, January.
    6. Olivier J. Blanchard & Lawrence H. Summers, 1986. "Hysteresis and the European Unemployment Problem," NBER Chapters, in: NBER Macroeconomics Annual 1986, Volume 1, pages 15-90, National Bureau of Economic Research, Inc.
    7. Lucia Foster & Cheryl Grim & John Haltiwanger, 2016. "Reallocation in the Great Recession: Cleansing or Not?," Journal of Labor Economics, University of Chicago Press, vol. 34(S1), pages 293-331.
    8. Susan Dynarski & Jonathan Gruber, 1997. "Can Families Smooth Variable Earnings?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 28(1), pages 229-303.
    9. Athanasios Orphanides & John C. Williams, 2013. "Monetary Policy Mistakes and the Evolution of Inflation Expectations," NBER Chapters, in: The Great Inflation: The Rebirth of Modern Central Banking, pages 255-288, National Bureau of Economic Research, Inc.
    10. Kiley, Michael T., 2015. "An evaluation of the inflationary pressure associated with short- and long-term unemployment," Economics Letters, Elsevier, vol. 137(C), pages 5-9.
    11. Blanchard, Olivier J. & Summers, Lawrence H., 1987. "Hysteresis in unemployment," European Economic Review, Elsevier, vol. 31(1-2), pages 288-295.
    12. Dave Reifschneider & William Wascher & David Wilcox, 2015. "Aggregate Supply in the United States: Recent Developments and Implications for the Conduct of Monetary Policy," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 63(1), pages 71-109, May.
    13. Regis Barnichon & Geert Mesters, 2018. "On the Demographic Adjustment of Unemployment," The Review of Economics and Statistics, MIT Press, vol. 100(2), pages 219-231, May.
    14. Dellas, Harris & Koubi, Vally, 2003. "Business cycles and schooling," European Journal of Political Economy, Elsevier, vol. 19(4), pages 843-859, November.
    15. Muriel Dal-Pont Legrand & Harald Hagemann, 2017. "Productive Recessions or Recuperative Powers of Capitalism? Schumpeter’s analysis of the cleansing effect re-considered," Post-Print halshs-01383616, HAL.
    16. Marcus Hagedorn & Iourii Manovskii, 2013. "Job Selection and Wages over the Business Cycle," American Economic Review, American Economic Association, vol. 103(2), pages 771-803, April.
    17. Steven J. Davis & R. Jason Faberman & John Haltiwanger, 2006. "The Flow Approach to Labor Markets: New Data Sources and Micro-Macro Links," Journal of Economic Perspectives, American Economic Association, vol. 20(3), pages 3-26, Summer.
    18. Bordo, Michael D. & Orphanides, Athanasios (ed.), 2013. "The Great Inflation," National Bureau of Economic Research Books, University of Chicago Press, number 9780226066950, October.
    19. Katharine L. Bradbury, 2000. "Rising tide in the labor market: to what degree do expansions benefit the disadvantaged?," New England Economic Review, Federal Reserve Bank of Boston, issue May, pages 3-33.
    20. Davis, Steven J. & Faberman, R. Jason & Haltiwanger, John, 2012. "Labor market flows in the cross section and over time," Journal of Monetary Economics, Elsevier, vol. 59(1), pages 1-18.
    21. Michael D. Bordo & Athanasios Orphanides, 2013. "The Great Inflation: The Rebirth of Modern Central Banking," NBER Books, National Bureau of Economic Research, Inc, number bord08-1.
    22. Jonathan A. Parker & Annette Vissing-Jorgensen, 2010. "The Increase in Income Cyclicality of High-Income Households and Its Relation to the Rise in Top Income Shares," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 41(2 (Fall)), pages 1-70.
    23. Modestino, Alicia Sasser & Shoag, Daniel & Ballance, Joshua, 2016. "Downskilling: changes in employer skill requirements over the business cycle," Labour Economics, Elsevier, vol. 41(C), pages 333-347.
    24. Hilary Hoynes & Douglas L. Miller & Jessamyn Schaller, 2012. "Who Suffers during Recessions?," Journal of Economic Perspectives, American Economic Association, vol. 26(3), pages 27-48, Summer.
    25. Stephanie Aaronson & Tomaz Cajner & Bruce Fallick & Felix Galbis-Reig & Christopher Smith & William Wascher, 2014. "Labor Force Participation: Recent Developments and Future Prospects," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 45(2 (Fall)), pages 197-275.
    26. Cynthia L. Doniger, 2019. "Do Greasy Wheels Curb Inequality?," Finance and Economics Discussion Series 2019-021, Board of Governors of the Federal Reserve System (U.S.).
    27. Julie L. Hotchkiss & Robert E. Moore, 2022. "Some Like it Hot: Assessing Longer-Term Labor Market Benefits from a High-Pressure Economy," International Journal of Central Banking, International Journal of Central Banking, vol. 18(2), pages 193-243, June.
    28. George A. Akerlof & Andrew K. Rose & Janet L. Yellen, 1988. "Job Switching and Job Satisfaction in the U.S. Labor Market," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(2), pages 495-594.
    29. Bruce Fallick & Pawel Krolikowski, 2018. "Hysteresis in Employment among Disadvantaged Workers," Working Papers (Old Series) 1801, Federal Reserve Bank of Cleveland.
    30. Mary C. Daly & Bart Hobijn, 2017. "Composition and Aggregate Real Wage Growth," American Economic Review, American Economic Association, vol. 107(5), pages 349-352, May.
    31. Song, Frank M & Wu, Yangru, 1997. "Hysteresis in Unemployment: Evidence from 48 U.S. States," Economic Inquiry, Western Economic Association International, vol. 35(2), pages 235-243, April.
    32. Aghion, Philippe & Saint-Paul, Gilles, 1998. "VIRTUES OF BAD TIMES Interaction Between Productivity Growth and Economic Fluctuations," Macroeconomic Dynamics, Cambridge University Press, vol. 2(3), pages 322-344, September.
    33. Harry J. Holzer & Steven Raphael & Michael A. Stoll, 2006. "Employers in the Boom: How Did the Hiring of Less-Skilled Workers Change during the 1990s?," The Review of Economics and Statistics, MIT Press, vol. 88(2), pages 283-299, May.
    34. Muriel Dal Pont Legrand & Harald Hagemann, 2017. "Retrospectives: Do Productive Recessions Show the Recuperative Powers of Capitalism? Schumpeter's Analysis of the Cleansing Effect," Journal of Economic Perspectives, American Economic Association, vol. 31(1), pages 245-256, Winter.
    35. Robert E. Hall, 1991. "Labor Demand, Labor Supply, and Employment Volatility," NBER Chapters, in: NBER Macroeconomics Annual 1991, Volume 6, pages 17-62, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Janice C. Eberly & James H. Stock & Jonathan H. Wright, 2020. "The Federal Reserve's Current Framework for Monetary Policy: A Review and Assessment," International Journal of Central Banking, International Journal of Central Banking, vol. 16(1), pages 5-71, February.
    2. Erica L. Groshen & Harry J. Holzer, 2021. "Labor Market Trends and Outcomes: What Has Changed since the Great Recession?," The ANNALS of the American Academy of Political and Social Science, , vol. 695(1), pages 49-69, May.
    3. Katheryn N. Russ & Jay C. Shambaugh & Sanjay R. Singh, 2024. "Currency Areas, Labor Markets, and Regional Cyclical Sensitivity," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 72(1), pages 152-195, March.
    4. Bennani, Hamza, 2023. "Effect of monetary policy shocks on the racial unemployment rates in the US," Economic Systems, Elsevier, vol. 47(1).
    5. Francesco Furlanetto & Ørjan Robstad & Pål Ulvedal & Antoine Lepetit, 2020. "Estimating hysteresis effects," Working Paper 2020/13, Norges Bank.
    6. Bart Hobijn & Ayşegül Şahin, 2021. "Maximum Employment and the Participation Cycle," NBER Working Papers 29222, National Bureau of Economic Research, Inc.
    7. Leila Bengali & Marcus Sander & Robert G. Valletta & Cindy Zhao, 2023. "Falling College Wage Premiums by Race and Ethnicity," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, vol. 2023(22), pages 1-6, August.
    8. Dossche, Maarten & Kolndrekaj, Aleksandra & Propst, Maximilian & Ramos Perez, Javier & Slacalek, Jiri, 2022. "Immigrants and the distribution of income and wealth in the euro area: first facts and implications for monetary policy," Working Paper Series 2719, European Central Bank.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Julie L. Hotchkiss & Robert E. Moore, 2022. "Some Like it Hot: Assessing Longer-Term Labor Market Benefits from a High-Pressure Economy," International Journal of Central Banking, International Journal of Central Banking, vol. 18(2), pages 193-243, June.
    2. Bruce Fallick & Pawel Krolikowski, 2022. "Excess Persistence in Employment of Disadvantaged Workers," International Journal of Central Banking, International Journal of Central Banking, vol. 18(4), pages 1-52, October.
    3. Olivier J. Blanchard, 2017. "Should we Get rid of the Natural Rate Hypothesis?," NBER Working Papers 24057, National Bureau of Economic Research, Inc.
    4. Christopher L. Foote & Richard W. Ryan, 2015. "Labor-Market Polarization over the Business Cycle," NBER Macroeconomics Annual, University of Chicago Press, vol. 29(1), pages 371-413.
    5. Brad Hershbein & Lisa B. Kahn, 2018. "Do Recessions Accelerate Routine-Biased Technological Change? Evidence from Vacancy Postings," American Economic Review, American Economic Association, vol. 108(7), pages 1737-1772, July.
    6. Clemens, Jeffrey, 2016. "The Low-Skilled Labor Market from 2002 to 2014: Measurement and Mechanisms," MPRA Paper 75690, University Library of Munich, Germany.
    7. Saez, Emmanuel & Schoefer, Benjamin & Seim, David, 2021. "Hysteresis from employer subsidies," Journal of Public Economics, Elsevier, vol. 200(C).
    8. Janet L. Yellen, 2016. "Macroeconomic Research After the Crisis : a speech at \"The Elusive 'Great' Recovery: Causes and Implications for Future Business Cycle Dynamics\" 60th annual economic conference sponsored b," Speech 915, Board of Governors of the Federal Reserve System (U.S.).
    9. Steven J. Davis & John Haltiwanger, 2014. "Labor Market Fluidity and Economic Performance," NBER Working Papers 20479, National Bureau of Economic Research, Inc.
    10. Fontanari, Claudia & Palumbo, Antonella & Salvatori, Chiara, 2020. "Potential Output in Theory and Practice: A Revision and Update of Okun's Original Method," Structural Change and Economic Dynamics, Elsevier, vol. 54(C), pages 247-266.
    11. Danny Yagan, 2019. "Employment Hysteresis from the Great Recession," Journal of Political Economy, University of Chicago Press, vol. 127(5), pages 2505-2558.
    12. Steven J. Davis & Till Von Wachter, 2011. "Recessions and the Costs of Job Loss," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 42(2 (Fall)), pages 1-72.
    13. Erica Blom & Brian C. Cadena & Benjamin J. Keys, 2021. "Investment over the Business Cycle: Insights from College Major Choice," Journal of Labor Economics, University of Chicago Press, vol. 39(4), pages 1043-1082.
    14. Valerie Cerra & Antonio Fatás & Sweta C. Saxena, 2023. "Hysteresis and Business Cycles," Journal of Economic Literature, American Economic Association, vol. 61(1), pages 181-225, March.
    15. Mary C. Daly, 2022. "The Singularity of the Dual Mandate," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, vol. 2022(27), pages 1-8, October.
    16. Brand, Claus & Obstbaum, Meri & Coenen, Günter & Sondermann, David & Lydon, Reamonn & Ajevskis, Viktors & Hammermann, Felix & Angino, Siria & Hernborg, Nils & Basso, Henrique & Hertweck, Matthias & Bi, 2021. "Employment and the conduct of monetary policy in the euro area," Occasional Paper Series 275, European Central Bank.
    17. Ulrike Malmendier & Leslie Sheng Shen, 2024. "Scarred Consumption," American Economic Journal: Macroeconomics, American Economic Association, vol. 16(1), pages 322-355, January.
    18. Rebecca Riley & Chiara Rosazza Bondibene & Garry Young, 2013. "Productivity Dynamics in the Great Stagnation: Evidence from British businesses," Discussion Papers 1407, Centre for Macroeconomics (CFM), revised Apr 2014.
    19. Riley, Rebecca & Rosazza-Bondibene, Chiara & Young, Garry, 2015. "The UK productivity puzzle 2008-13: evidence from British businesses," Bank of England working papers 531, Bank of England.
    20. Sohei Kaihatsu & Maiko Koga & Tomoya Sakata & Naoko Hara, 2019. "Interaction between Business Cycles and Economic Growth," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 37, pages 99-126, November.

    More about this item

    Keywords

    Business Cycles; Inequality; Labor supply and demand; Racial Disparities; Unemployment;
    All these keywords.

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedgfe:2019-72. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Ryan Wolfslayer ; Keisha Fournillier (email available below). General contact details of provider: https://edirc.repec.org/data/frbgvus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.