First Faculty Advisor
economics; employment; macroeconomics; recession;
There has been much discussion about the sluggish economic recovery out of the recent recession. However, the lag in employment growth is not unique to the most recent recovery. Jobless recoveries have plagued the U.S. economy over the last three business cycles. The reasons for this change have remained largely inconclusive, with several factors highlighted in the current literature. This paper uses Vector Autoregression (VAR) to analyze the employment gap in the United States over the past six decades. Unlike previous studies, it accounts for the most recent recession while also addressing alternative explanations - trade and globalization, government employment, the housing market, and the sectoral mix of the U.S. economy – within the context of business cycle economic theory. This study finds evidence that performance in the housing and the import sectors, as well as the industrial mix of the economy have a significant impact on the size of the employment gap in the United States. To a lesser extent, it finds that fluctuations in government spending and productivity also influence the size of the employment gap.