Hysteresis in Labor Markets? Evidence from Professional Long-Term Forecasts

23 Pages Posted: 14 Jun 2019

See all articles by John C. Bluedorn

John C. Bluedorn

International Monetary Fund (IMF) - Research Department

Daniel Leigh

International Monetary Fund (IMF)

Date Written: May 2019

Abstract

We explore the long-term impact of economic booms on labor market outcomes using a novel approach based on revisions to professional forecasts over the past 30 years for 34 advanced economies. We find that when employment rises unexpectedly, forecasters typically raise their long-term forecasts of employment by more than one-for-one and also expect a strong rise in labor force participation, suggesting more persistent effects than is traditionally assumed. Economic booms associated with changes in aggregate demand, when inflation is rising and unemployment falling unexpectedly, also come with persistent long-term effects on expected employment and labor force participation, suggesting positive hysteresis. Our forecast evaluation tests indicate that forecasters are, on average, unbiased in their assessment of these positive, persistent effects.

Keywords: Human capital, Labor force, Labor force participation, Labor markets, Demand, Hysteresis, business cycles, monetary policy., forecaster, WEO, forecast error, forecast, aggregate demand

JEL Classification: E32, E65, E66, E2, E01, E62, D4, E31

Suggested Citation

Bluedorn, John C. and Leigh, Daniel, Hysteresis in Labor Markets? Evidence from Professional Long-Term Forecasts (May 2019). IMF Working Paper No. 19/114. Available at SSRN: https://ssrn.com/abstract=3404068

John C. Bluedorn (Contact Author)

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Daniel Leigh

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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