Some Like It Hot: Assessing Longer-Term Labor Market Benefits from a High-Pressure Economy

Julie L. Hotchkiss and Robert E. Moore

Working Paper 2018-1c
January 2018 (Revised October 2018 and December 2020)

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This paper finds that both "hot" and "cold" economic environments affect current and future labor market outcomes (such as time spent unemployed and out of the labor force and hourly pay) differentially between advantaged and disadvantaged groups. Using longitudinal data, we find that while disadvantaged workers reap greater benefits from exposure to hot economies, that benefit alone is not enough to offset the greater cost of exposure to cold economic environments. This suggests that an overexpansive policy is limited in its ability to achieve lasting reductions in labor market gaps, which would likely be better served by a policy prioritizing reduced economic volatility.

JEL classification: E60, E24, J64, J31

Key words: hysteresis, labor force participation, labor market gaps, unemployment, wage gaps

https://doi.org/10.29338/wp2018-1c


This research was conducted with restricted access to U.S. Bureau of Labor Statistic data. The views expressed here are those of the authors and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System. Research assistance from Kalee Burns, Ellie Terry, Taylor Kelley, and Deepmala Pokhriyal is much appreciated, and thanks are extended to Lisa Cook, Mary Daly, Bruce Fallick, Joaquin Garcia-Cabo, Jordan Herring, Patrick Higgins, Carl Hudson, Philip Jefferson, Lisa Kahn, Nicardo McInnis, Pia Orrenius, Melinda Pitts, William Roberds, John Robertson, William Spriggs, Larry Wall, Sam Schulhofer-Wohl, and the participants of the California State University-Long Beach Economics Department Seminar Series for helpful comments and suggestions. Any remaining errors are the authors’ responsibility.
Please address questions regarding content to Julie L. Hotchkiss, Federal Reserve Bank of Atlanta and Georgia State University, Research Department, 1000 Peachtree St. NE, Atlanta, GA 30309, julie.l.hotchkiss@atl.frb.org; or Robert E. Moore, Georgia State University, Department of Economics, P.O. Box 3992, Atlanta, GA 30302-3992, rmoore@gsu.edu.
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