Recessions and Local Labor Markets

Bryan Stuart , GW


This paper studies the short- and long-run effects of each U.S. recession since 1973 on local economic activity. We analyze how economic activity evolves across local areas that are differentially affected by national recessions. For each recession, we find that employment, population, employment-to-population ratios, and earnings per capita experience persistent declines for at least a decade after recession’s end. While transfers also remain elevated for a decade or more, they are insufficient to fully offset earnings losses, leading to long-term declines in per-capita income as well. Changes in the composition of workers explain less than half of these persistent effects.
JEL Classification Codes: I24, I26, J24, J31
Keywords: recessions, hysteresis, local demand shocks, MSAs, commuting zones, event study J