Population-Employment Models: Stationarity, Cointegration, and Dynamic Adjustment

Population and employment in the 50 United States are found to be non-stationary and cointegrated. Vector error correction (VEC) models exhibit dynamics with adjustment to shocks essentially completed in 30–35 years. This contrasts with adjustment periods between one and two centuries for non-stationary models specified in levels. These dynamic adjustment patterns support the hypothesis that relatively long adjustment periods and slow dynamics are probably the spurious results of using non-stationary levels of population and employment outside of a VEC model framework. Recommendations for modeling the population–employment relationship are offered based on the findings reported.