Job number one at the Federal Reserve these days is to bring down high U.S. unemployment without sparking inflation. Job number two, it sometimes seems, is explaining just how unemployment got so high in the first place.
Two recent papers published by the San Francisco Fed offer what look like opposite takes on the topic.
“(S)tates in which businesses cited poor sales also registered disproportionately sharp drops in jobs and household spending,” wrote Princeton University professor Atif Mian and University of Chicago Booth School of Business professor Amir Sufi in a February Economic Letter.
This supports the view that a drop in aggregate demand led to job losses during the recession…While business concerns about government regulation and taxes also rose steadily from 2008 to 2011, there is no evidence that job losses were larger in states where businesses were more worried about these factors.
In other words, it’s not uncertainty over government policy that hurts jobs, it’s lack of demand.