Working Paper: NBER ID: w22432
Authors: Erling Barth; James Davis; Richard B. Freeman; Sari Pekkala Kerr
Abstract: This paper finds that US employment changed differently relative to output in the Great Recession and recovery than in most other advanced countries or in the US in earlier recessions. Instead of hoarding labor, US firms reduced employment proportionately more than output in the Great Recession, with establishments that survived the downturn contracting jobs massively. Diverging from the aggregate pattern, US manufacturers reduced employment less than output while the elasticity of employment to gross output varied widely among establishments. In the recovery, growth of employment was dominated by job creation in new establishments. The variegated responses of employment to output challenges extant models of how enterprises adjust employment over the business cycle.
Keywords: employment; Great Recession; labor market; establishments; output
JEL Codes: J0; J00; J01; J08; J10; J24; J60; J64; J70; J80
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| US firms reduced labor usage proportionately more than GDP during the Great Recession (F66) | countercyclical changes in productivity (O49) |
| Job losses were primarily due to contractions in existing establishments (J63) | significant divergence from previous patterns (B52) |
| Recovery was characterized by job gains predominantly in newly entering establishments (L26) | added more employees than were lost from exiting establishments (J63) |
| Manufacturing establishments exhibited labor hoarding behavior during the recession (J23) | wide variation in employment responses to output changes (E24) |
| Elasticity of employment to output was notably different across establishments (J29) | heterogeneity in responses (C21) |