Archive for May 25th, 2020

Why Has the US Economy Recovered So Consistently from Every Recession in the Past 70 Years?

May 25, 2020

Robert Hall and Marianna Kudlyak in this new NBER paper:

It is a remarkable fact about the historical US business cycle that, after unemployment reached its peak in a recession, and a recovery began, the annual reduction in the unemployment rate was stable at around 0.55 percentage points per year. The economy seems to have had an irresistible force toward restoring full employment. There was high variation in monetary and fiscal policy, and in productivity and labor-force growth, but little variation in the rate of decline of unemployment. We explore models of the labor market’s self-recovery that imply gradual working off of unemployment following a recession shock. These models explain why the recovery of market-wide unemployment is so much slower than the rate at which individual unemployed workers find new jobs.

The reasons include the fact that the path that individual job-losers follow back to stable employment often includes several brief interim jobs, sometimes separated by time out of the labor force. We show that the evolution of the labor market involves more than the direct effect of persistent unemployment of job-losers from the recession shock—unemployment during the recovery is elevated for people who did not lose jobs during the recession.


RIP Alberto Alesina and Oliver Williamson: Taking political and economic frictions seriously

May 25, 2020

2020 roars and keeps bringing bad news.

Economists Oliver Williamson and Alberto Alesina passed away last week.

A Fine Theorem Blog pays a tribute:

Very sad news this week for the economics community: both Oliver Williamson and Alberto Alesina have passed away. Williamson has been in poor health for some time, but Alesina’s death is a greater shock: he apparently had a heart attack while on a hike with his wife, at the young age of 63. While one is most famous for the microeconomics of the firm, and the other for political economy, there is in fact a tight link between their research agendas. They have attempted to open “black boxes” in economic modeling – about why firms organize the way they do, and the nature of political constraints on economic activity – to clarify otherwise strange differences in how firms and governments behave.


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