TY  - JOUR
AU  - Mian, Atif R
AU  - Sufi, Amir
TI  - What explains high unemployment? The aggregate demand channel
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 17830
PY  - 2012
Y2  - February 2012
DO  - 10.3386/w17830
UR  - http://www.nber.org/papers/w17830
L1  - http://www.nber.org/papers/w17830.pdf
N1  - Author contact info:
Atif R. Mian
Princeton University
Bendheim Center For Finance
26 Prospect Avenue
Princeton, NJ 08540
E-Mail: atif@princeton.edu

Amir Sufi
University of Chicago
Booth School of Business
5807 South Woodlawn Avenue
Chicago, IL 60637
Tel: 773/702-6148
Fax: 773/702-0458
E-Mail: amir.sufi@chicagobooth.edu
M2  - featured in NBER digest on 2012-05-25
AB  - A drop in aggregate demand driven by shocks to household balance sheets is responsible for a large fraction of the decline in U.S. employment from 2007 to 2009. The aggregate demand channel for unemployment predicts that employment losses in the non-tradable sector are higher in high leverage U.S. counties that were most severely impacted by the balance sheet shock, while losses in the tradable sector are distributed uniformly across all counties. We find exactly this pattern from 2007 to 2009. Alternative hypotheses for job losses based on uncertainty shocks or structural unemployment related to construction do not explain our results. Using the relation between non-tradable sector job losses and demand shocks and assuming Cobb-Douglas preferences over tradable and non-tradable goods, we quantify the effect of aggregate demand channel on total employment. Our estimates suggest that the decline in aggregate demand driven by household balance sheet shocks accounts for almost 4 million of the lost jobs from 2007 to 2009, or 65% of the lost jobs in our data.
ER  -