Labor market impact of the Great Recession varied widely across US states, according to Cleveland Fed researchers
The ratio of unemployed workers to job vacancies helps gauge the dynamics of labor markets at the state level
- Researchers employ a ratio of the number of unemployed workers to job vacancies to measure labor market health
- Evidence shows a delay in wage growth until the ratio of unemployed workers to job vacancies returned to prerecession levels
- Natural-resource-rich states like North Dakota were able to weather the recession well, while some Midwestern and Southern states had slower recoveries
The Great Recession had a huge impact on employment across the country, but focusing only on national jobs figures disguises the diverse state by state narrative hidden underneath.
Federal Reserve Bank of Cleveland researchers Murat Tasci and Caitlin Treanor map the ratio of the number of unemployed workers to job vacancies, or the U/V ratio, over time to show the geographical variation in the intensity of the recession’s effects and the strength of the recovery. The empirical results imply the U/V ratio can be used at the state level to understand the evolution of the labor market over the business cycle.
The researchers show that in the final month of the recession, the ratios were high in almost every state, with half of them having at least 5 unemployed workers for every vacant job opening in the state, and in Michigan, it was as high as 12 per opening. Only states rich in natural resources, or ones with relatively heavy federal government employment, were spared the brunt of the recession and kept their ratios under 3.
As the labor market recovered after the recession, wages, as measured by the employment cost index (ECI), remained low. When viewed through the lens of the U/V ratio, it suggests that it is plausible that firms do not need to bid up wages until they have strong competition for workers, that is, until the level of the U/V ratio is relatively low.
Read the full report, Labor Market Tightness Across US States since the Great Recession, here.
Federal Reserve Bank of Cleveland
The Federal Reserve Bank of Cleveland is one of 12 regional Reserve Banks that along with the Board of Governors in Washington DC comprise the Federal Reserve System. Part of the US central bank, the Cleveland Fed participates in the formulation of our nation’s monetary policy, supervises banking organizations, provides payment and other services to financial institutions and to the US Treasury, and performs many activities that support Federal Reserve operations System-wide. In addition, the Bank supports the well-being of communities across the Fourth Federal Reserve District through a wide array of research, outreach, and educational activities.
The Cleveland Fed, with branches in Cincinnati and Pittsburgh, serves an area that comprises Ohio, western Pennsylvania, eastern Kentucky, and the northern panhandle of West Virginia.
Doug Campbell, firstname.lastname@example.org, 513.455.4479