Okun Revisited: Who Benefits Most from a Strong Economy?

Abstract

Previous research has shown that the labor market experiences of less advantaged groups are more cyclically sensitive than the labor market experiences of more advantaged groups; in other words, less advantaged groups experience a high-beta version of the aggregate fluctuations in the labor market.For example, when the unemployment rate of whites increases by 1 percentage point, the unemployment rates of African Americans and Hispanics rise by well more than 1 percentage point, on average.This behavior is observed across other labor-market indicators, and is roughly reversed when the unemployment rate declines.We update this work to include the post-Great Recession period and extend the analysis to consider whether these high-beta relationships change when the labor market is especially tight.We find suggestive evidence that when the labor market is already strong, a further increment of strengthening provides a modest extra benefit to some disadvantaged groups, relative to earlier in the labor-market cycle.In addition, we provide preliminary evidence suggesting that these gains are somewhat persistent for African Americans and women.@ The views stated in this document are those of the authors and may not be shared by the members of the Board of Governors of the Federal Reserve System, the other members of its staff, or the Federal Reserve Bank of San Francisco.We are grateful to Francisca Alba, Neil Gerstein, Bo Yeon Jang, and Morgan Smith for excellent research assistance and to Tomaz Cajner and Chris Nekarda for providing alreadyconstructed datasets and data dictionaries for some of the CPS data used in our analyses."The difference between unemployment rates of 5 percent and 4 percent extends far beyond the creation of jobs for 1 percent of the labor force."

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