Abstract

http://ssrn.com/abstract=1961223
 
 

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What Explains the 2007-2009 Drop in Employment?


Atif R. Mian


Princeton University - Department of Economics; Princeton University - Woodrow Wilson School of Public and International Affairs; NBER

Amir Sufi


University of Chicago - Booth School of Business; NBER

February 2014

Fama-Miller Working Paper
Chicago Booth Research Paper No. 13-43

Abstract:     
We show that deterioration in household balance sheets, what we refer to as the housing net worth channel, played a significant role in the sharp decline in U.S. employment between 2007 and 2009. Using geographical variation across U.S. counties, we show that counties with a larger decline in housing net worth experience a larger decline in non-tradable employment. This result is not driven by industry-specific supply-side shocks, exposure to the construction sector, policy-induced business uncertainty, or contemporaneous credit supply tightening. We find little evidence of labor market adjustment in response to the housing net worth shock. There is no expansion in the tradable sector in affected counties, and the correlation between the housing net worth decline and job losses in the tradable sector is zero. There is no evidence of wage adjustment, or of net labor emigration out of affected counties either.

Number of Pages in PDF File: 51

Keywords: Great Recession, Unemployment, Aggregate Demand

JEL Classification: E20, E30, E40, E51

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Date posted: November 17, 2011 ; Last revised: March 1, 2014

Suggested Citation

Mian, Atif R. and Sufi, Amir, What Explains the 2007-2009 Drop in Employment? (February 2014). Fama-Miller Working Paper ; Chicago Booth Research Paper No. 13-43. Available at SSRN: http://ssrn.com/abstract=1961223 or http://dx.doi.org/10.2139/ssrn.1961223

Contact Information

Atif R. Mian (Contact Author)
Princeton University - Department of Economics ( email )
Princeton, NJ 08544-1021
United States
Princeton University - Woodrow Wilson School of Public and International Affairs ( email )
Princeton University
Princeton, NJ 08544-1021
United States
NBER
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Amir Sufi
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
NBER
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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