Changes in the Character of the Labor Market over the Business Cycle.

• Author: Kahn, Lisa B.
• Position: Research Summaries

Economists have long been interested in the immediate consequences of business cycle fluctuations. However, until recently, they have paid less attention to the lasting impacts of recessions on workers and firms. In this piece, I summarize some of my research contributions toward a better understanding of how and why recessions impact workers' careers both in the short and long run.

I begin by summarizing my work showing that the Great Recession accelerated firm-level adoption of technologies that replaced routine labor. As a consequence, workers previously employed in routine-task occupations saw their skills rapidly depreciate and faced a more difficult recovery. I next discuss how the business cycle impacts the job ladder. Workers tend to move up a wage ladder across firms, gradually making their way to higher-paying firms as they accumulate labor market experience. Recessions impede this process, resulting in halting career progression, which is especially important for young workers. Both of these areas of research imply long-lasting consequences of recessions for certain groups of workers. Finally, I describe my work quantifying the lasting impacts of recessions on careers of new college graduates.

Technological Adoption and the Great Recession

One of the most important long-run trends in the U.S. labor market has been the shift in employment and wages away from occupations in the middle of the skill distribution toward those in the tails. This so-called polarization has been linked to technological change, whereby new machine technologies such as IT substitute for middle-skill jobs and are in turn complementary to high-skill cognitive jobs. Daron Acemoglu and David Autor provide a survey. (1)

Until recently, polarization had been thought to be a gradual, secular phenomenon. However, a long theoretical literature beginning with Joseph Schumpeter's conception of creative destruction suggests that adjustments to technological change may be more episodic. In boom times, high opportunity costs, or frictions such as adjustment costs, may inhibit resources from being reallocated optimally in the face of technological change. (2) Recessions lower the opportunity cost and can produce large enough shocks to overcome these frictions.

Whether adjustments to new technology are smooth or lumpy is important for policy and for our understanding of recoveries. The recoveries from the last three U.S. recessions (1991, 2001, 2007-09) have been jobless: employment was slow to rebound despite recovery in aggregate output. Nir Jaimovich and Henry E. Siu provide suggestive evidence that polarization and jobless recovery are linked, showing that the vast majority of declines in middle-skill employment have occurred during recessions and that, over the same time period, recovery was jobless only in these occupations. (3) If these episodic employment declines were driven by lumpy adjustment to existing technologies, they would leave a mass of displaced workers with the wrong skills for new production.

In a recent paper, Brad Hershbein and I provide direct evidence that firm-level technological adoption and restructuring of employment is episodic around recessions. (4) We use a new dataset collected by Burning Glass Technologies of the near-universe of...