Webinar

The Dual U.S. Labor Market Uncovered

Hie Joo Ahn, Principal Economist, Federal Reserve Board

Abstract

Aggregate U.S. labor market dynamics are well approximated by a dual labor market supplemented with a third, predominantly home-production, segment. We uncover this structure by estimating a Hidden Markov Model on labor market transitions for 1980-2021. Workers in the primary sector, roughly 55% of the population, are almost always employed and rarely experience unemployment. The secondary sector, 14% of the population, absorbs the bulk of seasonal and business cycle fluctuations. Those in the tertiary segment only infrequently participate in the labor market. Jobs in the primary sector offer more job security, pay higher wages, and offer higher returns to education and experience, consistent with the conjectures of the conventional Dual Labor Market (DLM) hypothesis. However, the individual-level data suggest limited mobility between sectors rather than perfect segmentation. We show this by estimating a generalized DLM model with mobility between three segments which yields that our aggregate results are robust to this extension, despite different individual-level dynamics.

Speaker Bio

Hie Joo Ahn is a Principal Economist at the Federal Reserve Board’s Division of Research and Statistics, where she works in the Current Macroeconomic Conditions section. She joined the Board in 2015 after receiving her Ph.D. in Economics from the University of California, San Diego, and previously received a B.A. in Business Administration from Seoul National University. Before her doctoral studies, she worked at the Bank of Korea conducting policy work on inflation forecasting, monetary policy, and international capital flows. Her research focuses on macroeconomics, labor market dynamics, time-series econometrics, forecasting, and nowcasting, and she has published on topics such as unemployment dynamics, inflation, and monetary policy. Hie Joo also serves as a member of the Conference on Research in Income and Wealth at the NBER.