The Unassuming Economist

From a paper by Jeffrey A. Levy, Gabriel Mathy, and Xuguang Simon Sheng:

“Uncertain times are often bad times, and separating uncertainty shocks from large negative
level shocks is difficult. We use the Base Realignment and Closure (BRAC) process in the
United States in 2005 to investigate this issue, where the level shock may be positive, negative,
or neutral, and is finalized only after a well defined period of significant uncertainty. When
combined with an even greater period of time before the level shock is implemented, we can
clearly separate first-moment from second-moment shocks. When using attention to BRAC
as an instrument, we find that the effect of uncertainty on employment and the labor force is
small but significant, with a 1% decrease in response to a one standard deviation increase in
uncertainty. While similar, the peak effect is smaller and comes after a shorter lag than the
effect found in the existing literature that relies on dynamic models that fall short of making
causal claims.”