The Long and Large Decline in State Employment Growth Volatility

This study documents a general decline in the volatility of employment growth during the period 1956 to 2002 and examines its possible sources. The authors 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 percent 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.