What Factors Cause Jobless Recoveries in Minnesota?

Sungkook Lee

Abstract


Since the 1990-91 recession, the US economy has experienced recoveries in which the level of employment remains low in comparison with the growth rate of economic activity, an episode known as jobless recoveries. The literature considers three main explanations for jobless recoveries in the US: a consequence of sectoral shifts, organizational restructuring of firms, and more flexible hiring strategies in the economy. This paper employs multiple regression analysis to evaluate all three hypotheses on labor markets in Minnesota. By means of sequential structural break tests, the study finds that there were four breaks (March 1989, December 1992, May 2000, and April 2007) in the employment trend and also three breaks (November 2001, September 2003, and around June and September 2009) in the number of hours worked. This paper finds that jobless recoveries in Minnesota can be explained by a combination of different factors: a change in the structure of labor markets due to sectoral shifts and a change in the hiring strategies of firms from the extensive margin to the intensive margin. In terms of policy, the results suggest that current monetary policy will only have a marginal effect in reducing unemployment rates in the U.S.

Keywords


Jobless Recoveries; Structural Change; Hodrick-Prescott Filter

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