Does Labor Supply Matter During a Recession? Evidence from the Seasonal Cycle
Every year has large demand and supply shifts associated with the seasons, regardless of the phase of the business cycle. Based on measures dating back to the 1940s, the seasonal shifts reject the hypotheses that demand shifts affect employment outcomes significantly more in recession years than in non-recession years, and that supply shifts matter significantly less (if at all) in the recession years. My results are consistent with the hypothesis that recessions are characterized by labor market distortions that are neither alleviated by additional labor demand nor exacerbated by additional labor supply.
I appreciate comments by Gary Becker, Gauti Eggertsson, Jeff Miron, Kevin Murphy, and a number of University of Chicago students. I will provide updates on this work on my blog www.panic2008.net. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research.