Robert Waldmann Predicts a Jobless Recovery too...
Well, that's discouraging! I was hoping he would disagree with me!
Robert Waldmann:
Broken Okun ~ Angry Bear: i too predict a jobless recovery.... I can reformulate Brad's model. The key variable is managers' perception of the persistence of shifts in demand for their products. If they think that demand for their products will recover soon, they hoard labor. If they think that it will stay low, they lay off workers until they can just meet current demand. This means that a recession accompanied by a sectoral shift will cause a larger decline in employment. During the recovery, firms in the expanding sector will increase employment slowly as they can only train so many new workers....
Oddly, however, Brad and I have co-authored a paper with [yet] a third explanation: http://ideas.repec.org/a/fip/fedfer/y1997p33-52n1.html
Our claim is that in the USA the Okun's law coefficient is an increasing function of the unemployment rate. The story is simple, if there is high unemployment, firms can lay workers off and then rehire them later, because the workers won't have found new jobs and will just have to wait to get their old jobs off. This suggests that the modified Okun's law gives a nonlinear and in particular concave relationship between unemployment and GNP minus trend (or GNP minus peak or GNP minus last years GNP). This means that the drop in GNP wich corresponds to an increase of unemployment form say 5 to 9% is less than twice the drop in GNP which corresponds to an increase from 5% to 7%. A model in a published paper predicts well out of sample. So why is Brad psychoanalyzing businessmen?
