Atlantic Economic Journal

, Volume 46, Issue 1, pp 3–25 | Cite as

Jobless Recovery: A Time Series Look at the United States

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Abstract

We use vector auto regression models controlling for log differences in gross domestic product (GDP), the unemployment rate, and changes in the unemployment rate to show that following a recession, the rate of decrease in the unemployment rate significantly slowed over time. Controlling for GDP growth rates, we find two structural breaks indicating weaker recoveries in the unemployment rate over time, i.e. recoveries that are increasingly jobless. The first break is in 1959, and the second is in 1984 coinciding with the usual timing of the Great Moderation. Using the 7.85% unemployment rate at the end of 2012 and assuming average annual recovery growth of 2%, the structural breaks imply an additional two full years are necessary to return to a historical long-run average of 5.5%. We empirically explore possible causes proposed in the literature including industry composition, participation rates and social benefits. Demographic shifts in the labor force and changing industry composition appear to be the strongest contributors to jobless recovery.

Keywords

Unemployment rates Business cycles Multivariate analysis and structural breaks 

JEL

E24 E32 C32 

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Copyright information

© International Atlantic Economic Society 2018

Authors and Affiliations

  1. 1.Department of EconomicsRice UniversityHoustonUSA
  2. 2.Department of EconomicsDrexel UniversityPhiladelphiaUSA

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