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What Explains the 2007-2009 Drop in Employment?

Author(s): Mian, Atif R; Sufi, Amir

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Abstract: © 2014 The Econometric Society. We show that deterioration in household balance sheets, or the housing net worth channel, played a significant role in the sharp decline in U.S. employment between 2007 and 2009. Counties with a larger decline in housing net worth experience a larger decline in non-tradable employment. This result is not driven by industry-specific supply-side shocks, exposure to the construction sector, policy-induced business uncertainty, or contemporaneous credit supply tightening. We find little evidence of labor market adjustment in response to the housing net worth shock. There is no significant expansion of the tradable sector in counties with the largest decline in housing net worth. Further, there is little evidence of wage adjustment within or emigration out of the hardest hit counties.
Publication Date: Nov-2014
Citation: Mian, A, Sufi, A. (2014). What Explains the 2007-2009 Drop in Employment?. Econometrica, 82 (6), 2197 - 2223. doi:10.3982/ECTA10451
DOI: doi:10.3982/ECTA10451
ISSN: 0012-9682
EISSN: 1468-0262
Pages: 2197 - 2223
Type of Material: Journal Article
Journal/Proceeding Title: Econometrica
Version: Final published version. Article is made available in OAR by the publisher's permission or policy.

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