Postwar Period Changes in Employment Volatility: New Evidence from State/Industry Panel Data

FRB of Philadelphia Working Paper No. 03-18

38 Pages Posted: 24 Jul 2004

See all articles by Gerald A. Carlino

Gerald A. Carlino

Federal Reserve Bank of Philadelphia

Robert H. DeFina

Villanova University

Keith Sill

affiliation not provided to SSRN

Date Written: August 2003

Abstract

Many recent studies have identified a decline in the volatility of U.S. real output over the last half century. This study examines a less discussed and analyzed trend, but one as significant as the drop in output volatility, namely a substantial decline in employment volatility during the postwar period. Using a new panel data set covering industry employment by state since 1952, the authors find that a large decline in employment growth volatility began in the early 1950s and largely ended by the mid- to late 1960s. This study also illuminates the geographical dimension of the declines, an aspect that has heretofore been unexamined. The data indicate that all states have shared in the volatility decline, although the magnitudes have differed.

A pooled cross-section/time-series model indicates that fluctuations in statespecific (state level differences in demographic and industrial composition) and macro variables (e.g., changes in monetary policy regimes) have each played a potentially substantial role in explaining volatility trends. The authors find that state-specific forces account for between 1 percent and 24 percent of the variations in employment volatility across time and space. Macro variables account for between 30 percent and 76 percent of the movements in employment volatility, a range broadly consistent with the findings of Stock and Watson (2002). An important finding of this study is that "unknown forms of good luck," in the form of smaller shocks to employment, account for between 1 percent and 10 percent of the observed fluctuations. This latter finding suggests a reduced role for unknown forms of good luck in describing the postwar decline in volatility compared to the findings in Stock and Watson's (2002) analysis of the variance of real output growth.

Keywords: Employment

Suggested Citation

Carlino, Gerald A. and DeFina, Robert H. and Sill, Keith, Postwar Period Changes in Employment Volatility: New Evidence from State/Industry Panel Data (August 2003). FRB of Philadelphia Working Paper No. 03-18. Available at SSRN: https://ssrn.com/abstract=567702 or http://dx.doi.org/10.2139/ssrn.567702

Gerald A. Carlino (Contact Author)

Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States
215-574-6434 (Phone)
215-574-4364 (Fax)

Robert H. DeFina

Villanova University ( email )

Villanova, PA 19085
United States

Keith Sill

affiliation not provided to SSRN

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