Must-read: Danny Yagan: “The Enduring Employment Impact of Your Great Recession”

Must-Read: Danny Yagan: The Enduring Employment Impact of Your Great Recession: “In the cross section, employment rates diverged across U.S. local areas 2007-2009…

…and–in contrast to history–have barely converged [since]…. I… use administrative data to compare two million workers with very similar pre-2007 human capital: those who in 2006 earned the same amount from the same retail firm, at establishments located in different local areas. I find that, conditional on 2006 firm-x-wages fixed effects, living in 2007 in a below-median 2007-2009-fluctuation area caused those workers to have a 1.3%-lower 2014 employment rate…. Location has affected long-term employment and exacerbated within-skill income inequality. The enduring employment impact is not explained by more layoffs, more disability insurance enrollment, or reduced migration. Instead, the employment outcomes of cross-area movers are consistent with severe-fluctuation areas continuing to depress their residents’ employment. Impacts are correlated with housing busts but not manufacturing busts, possibly reconciling current experience with history. If recent trends continue, employment rates are estimated to converge in the 2020s–adding up to a relative lost decade for half the country.

March 20, 2016


Brad DeLong
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