Academic Literature

US – The average employment multiplier is 1.09 study finds

This paper estimates dynamic employment multipliers in a U.S. county during 1998-2015. On average,one exogenous tradable job gain creates 1.1 jobs in the rest of the county economy in the same year, but is offset by losses of 0.23 job one year later and 0.32 job two years later. The multiplier is modest during the 2002-2007 boom and is large during the Great Recession. It is smaller in the initial years of the Recovery but is larger in the latter years. Uncertainty and credit constraints are two possible hindrances to the propagation of job gains during the Recovery.

Exploiting exogenous variation in tradable employment changes driven by
aggregate shocks, this paper provides estimates for within-county employment
multipliers. It finds that from 1998 to 2015, the average employment multiplier is
1.09: each tradable job gain (or loss) creates (destroys) another 1.09 jobs in the
rest of the county economy. This paper also discovers interesting dynamics of the
multiplier: exogenous job gains (losses) continue to propagate in the following
year, but are partly offset by job changes in the rest of the county economy as
early as one year later. These aspects of the employment multiplier are arguably
due to the general equilibrium effects operating via wage and price adjustments.

Focusing on the multiplier over the business cycle, this paper finds that the
multiplier is modest (0.98) during the boom time (2002-2007) and large during the
Great Recession (1.61). However, during the initial four years of recovery, the
presence of job gain multiplier is arguably indistinct. We only find consistently
significant positive spillover from tradable job gains to other sectors when year
2015 is included. We further find supporting evidence suggesting uncertainty and
credit constraints are two potential factors that obstruct the propagation of job gains
during the recovery period. The findings imply that complementary policies, such
as those that alleviate uncertainty, boost consumer confidence, and increase
availability of credit might be needed to ensure the spillover channels of job
creations are operating favorably.

Chosen excerpts by Job Market Monitor. Read the whole story at Employment Multipliers over the Business Cycle


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