Long-Term Nonemployment and Job Displacement

The unprecedented rise in long-term unemployment (LTU) during the Great Recession has raised the question whether LTU contributed to the persistent decline in the aggregate employment rate. An important difficulty in evaluating this question is that standard measures do not capture the duration of joblessness for the rising number of nonemployed workers not formally classified as unemployed in official statistics. To better assess the presence of hysteresis effects in the United States labor market, using longitudinal administrative micro data spanning over 30 years, we first present new measures of the incidence and duration of long-term nonemployment (LTNE). Then, to sidestep the well-known difficulties in estimating the employment effects of unemployment duration, we use our administrative data to provide new measures of the extent of hysteresis based on displaced workers. In contrast to the unprecedented rise in LTU, we find that both the incidence and duration of LTNE in the Great Recession was comparable to that in previous recessions. We also find that workers displaced from stable jobs experience persistent reductions in employment that were similar in the Great Recession. These findings imply that countercyclical increases in the incidence of LTNE and job loss are likely to have resulted in some persistent reductions in employment during most recessions since the early 1980s. Yet, upper-bound estimates based on multiple measures of job loss suggest that the degree of employment persistence due to job loss in the Great Recession is likely to have been moderate. !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! * Corresponding Author: [email protected]. We would like to thank Andy Atkeson, Steve Davis, David Romer, Daniel Sullivan, Antonella Trigari and numerous participants at the Jackson Hole Symposium for helpful comments. Ben Smith provided excellent research assistance.