Interstate labor market connectedness in the United States

This paper investigates the labor market connectedness across the US states. We apply the Diebold-Yilmaz Connectedness Index (DYCI) methodology to weekly initial unemployment claims to obtain connectedness measures across 51 states between 1989 to 2021. The system-wide connectedness increases during the US recessions since 1990. We also show that changes in the monetary policy stance affects the regional unemployment levels and their connectedness across states. A significant section of the thesis is devoted to analyzing the state-level initial unemployment claims and their connectedness across states during the COVID-19 recession. We show that in addition to the number of new COVID-19 cases, state-level government policy stringency and community mobility patterns play a critical role in explaining the unemployment dynamics during the COVID-19 recession. The same factors defined in relative terms over the pairs of states as well as distance and the value of shipments across states also explain the transmission of unemployment shocks across states during the COVID-19 recession.