The Long and Large Decline in State Employment Growth Volatility


  • We especially thank Pok-Sang Lam and an anonymous referee for comments and suggestions. The opinions expressed here are solely those of the authors and do not necessarily represent those of the Federal Reserve Bank of Philadelphia, the Federal Reserve System, or Villanova University.


This study documents a general decline in the volatility of employment growth during the period 1956–2002 and examines its possible sources. We use a panel design that exploits the considerable state-level variation in volatility during the period. The roles of monetary policy, oil prices, industrial employment shifts, and a coincident index of business cycle variables are explored. Overall, these four variables taken together explain as much as 31% of the fluctuations in employment growth volatility. Individually, each of the four factors is found to have significantly contributed to fluctuations in employment growth volatility, although to differing degrees.