Working Paper: NBER ID: w23844
Authors: Danny Yagan
Abstract: This paper uses U.S. local areas as a laboratory to test whether the Great Recession depressed 2015 employment. In full-population longitudinal data, I find that exposure to a 1-percentage-point-larger 2007-2009 local unemployment shock caused working-age individuals to be 0.4 percentage points less likely to be employed at all in 2015, evidently via labor force exit. These shocks also increased 2015 income inequality. General human capital decay and persistently low labor demand each rationalize the findings better than lost job-specific rents, lost firm-specific human capital, or reduced migration. Simple extrapolation suggests the recession caused most of the 2007-2015 age-adjusted employment decline.\n
Keywords: Great Recession; Employment Hysteresis; Labor Market; Unemployment; Income Inequality
JEL Codes: E0; H0; L0
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Local unemployment shock during the Great Recession (J69) | Employment likelihood in 2015 (J23) |
| Local unemployment shock during the Great Recession (J69) | Labor force exit (J63) |
| Largest shock quintile (C55) | Employment likelihood in 2015 (J23) |
| Great Recession (G01) | Overall decline in employment rates (F66) |