Okun Revisited: Who Benefits Most from a Strong Economy

80 Pages Posted: 22 Oct 2019

See all articles by Stephanie Aaronson

Stephanie Aaronson

Brookings Institution

Mary C. Daly

Federal Reserve Bank of San Francisco

William Wascher

Board of Governors of the Federal Reserve System

David W. Wilcox

Board of Governors of the Federal Reserve System

Date Written: September 9, 2019

Abstract

Previous research has shown that the labor market experiences of less advantaged groups are more cyclically sensitive than the labor market experiences of more advantaged groups; in other words, less advantaged groups experience a high-beta version of the aggregate fluctuations in the labor market. For example, when the unemployment rate of whites increases by 1 percentage point, the unemployment rates of African Americans and Hispanics rise by well more than 1 percentage point, on average. This behavior is observed across other labor-market indicators, and is roughly reversed when the unemployment rate declines. We update this work to include the post-Great Recession period and extend the analysis to consider whether these high-beta relationships change when the labor market is especially tight. We find suggestive evidence that when the labor market is already strong, a further increment of strengthening provides a modest extra benefit to some disadvantaged groups, relative to earlier in the labor-market cycle. In addition, we provide preliminary evidence suggesting that these gains are somewhat persistent for African Americans and women.

Keywords: Business Cycles, Inequality, Labor supply and demand, Racial Disparities, Unemployment

Suggested Citation

Aaronson, Stephanie and Daly, Mary Colleen and Wascher, William and Wilcox, David W., Okun Revisited: Who Benefits Most from a Strong Economy (September 9, 2019). FEDS Working Paper No. 2019-072, Available at SSRN: https://ssrn.com/abstract=3473058 or http://dx.doi.org/10.17016/FEDS.2019.072

Stephanie Aaronson (Contact Author)

Brookings Institution

1775 Massachusetts Ave, NW
Washington, DC 20036
United States

Mary Colleen Daly

Federal Reserve Bank of San Francisco ( email )

101 Market Street
San Francisco, CA 94105
United States

William Wascher

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States
202-452-2812 (Phone)
202-452-3819 (Fax)

David W. Wilcox

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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