The US economy has consistently recovered from every recession in the past 70 years, with a stable annual reduction in unemployment rate of around 0.55 percentage points per year. This remarkable fact can be explained by models of the labor market's self-recovery, which imply a gradual working off of unemployment following a recession shock. The evolution of the labor market involves more than the direct effect of persistent unemployment of job-losers from the recession shock, as unemployment during the recovery is elevated for people who did not lose jobs during the recession. This research paper provides insights into the dynamics of the US business cycle and the role of monetary and fiscal policy in promoting economic recovery.
