Job Flows , Jobless Recoveries , and the Great Moderation

This paper uses new data on job creation and job destruction to find evidence of a link between the jobless recoveries of the last two recessions and the recent decline in aggregate volatility known as the Great Moderation. I find that the last two recessions are characterized by jobless recoveries that came about through contrasting margins of employment adjustment—a relatively slow decline in job destruction in 1991-92 and persistently low job creation in 2002-03. In manufacturing, I find that these patterns followed a secular decline in the magnitude of job flows and an abrupt decline in their volatility. A structural VAR analysis suggests that these patterns are driven by a decline in the volatilities of the underlying structural shocks in addition to a shift in the response of job flows to these shocks. The shift in structural responses is broadly consistent with the change in job flow patterns observed during the jobless recoveries.