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Explaining US Employment Growth after the Great Recession: The role of Output-Employment Non-linearities
Menzie Chinn
Valérie Mignon
2014, Journal of Macroeconomics, 42, pp.118-129
We investigate the relationship between employment and GDP in the United States. We disentangle trend and cyclical employment components by estimating a non-linear smooth transition error-correction model that simultaneously accounts for long-term relationships between growth and employment and short-run instability over the business cycle. Based on out-of-sample conditional forecasts, we conclude that, since the end of the 2008–09 recession, US employment is on average around 1% below the level implied by the long run output–employment relationship, meaning that about 1.2 million of the trend employment loss cannot be attributed to the identified cyclical factors.

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