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Derived Demand for Labor and Breaks in Trend: Does Hysteresis in Employment Imply Hysteresis in the Growth Path of Real Output?

In: Bad Breaks in Real GDP and Employment

Author

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  • Harrison C. Hartman

Abstract

With earlier chapters finding evidence supporting the view that at least some decreases in aggregate demand have resulted in downward breaks in U.S. real GDP, this chapter begins seeking explanations by investigating whether decreases in AD have also led to downward breaks in U.S. employment. Using the natural log of total nonfarm payroll employment in the U.S. as the measure of employment, this chapter finds evidence of one or two breaks in U.S. nonfarm payroll employment in the intercept of an equation for the change in the log of U.S. nonfarm payroll employment based on Chow (1960) breakpoint testing. Could this suggest breaks in the trend coefficient for a similar regression equation with the data in log level form rather than change in the log form? The downward breaks in employment occurred around the times of AD shock recessions in 1953 and 2001. Also, if the testing is valid, breakpoint unit root testing finds a break in the intercept of an equation for U.S. nonfarm payroll employment in log level form around the start of the Great Recession. Less employment implies at least some will have less spending power. Additionally, do recessions sometimes cause decreases in population growth?

Suggested Citation

  • Harrison C. Hartman, 2024. "Derived Demand for Labor and Breaks in Trend: Does Hysteresis in Employment Imply Hysteresis in the Growth Path of Real Output?," Springer Books, in: Bad Breaks in Real GDP and Employment, chapter 0, pages 95-106, Springer.
    • Handle: RePEc:spr:sprchp:978-3-031-57769-7_6
    DOI: 10.1007/978-3-031-57769-7_6
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