Hiring, Job Loss, and the Severity of Recessions

*The views expressed here are those of the author and do not necessarily represent the views of the Federal Reserve Bank of Philadelphia or the Federal Reserve System. he hiring and firing decisions of individual businesses are one of the drivers behind movements in the unemployment rate during expansions and recessions. Whether a recession is driven by large job losses or weak hiring will greatly affect the composition and consequences of the unemployed and can have important policy implications. The extent to which recessions are times of weak hiring or high job loss depends in large part on the severity of the downturn. A recession is a time when the fraction of businesses that are expanding goes down and the fraction of businesses that are contracting goes up. A severe recession is one in which the shift in this distribution is more dramatic. In this article, Jason Faberman discusses how the severity of a recession determines whether high job loss or weak hiring will be the more important source of declining employment and rising unemployment through disproportionate changes in the distribution of business-level employment growth.