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A Rising Natural Rate of Unemployment: Transitory or Permanent?

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Author Info

  • Mary Daly

    (Federal Reserve Bank)

  • Bart Hobijn

    (Federal Reserve Bank, and VU University Amsterdam)

  • Aysegul Sahin

    (Federal Reserve Bank)

  • Robert Valletta

    (Federal Reserve Bank)

Abstract

The U.S. unemployment rate has remained stubbornly high since the 2007-2009 recessionleading many to conclude that structural, rather than cyclical, factors are to blame. Relying on astandard job search and matching framework and empirical evidence from a wide array of labormarket indicators, we examine whether the natural rate of unemployment has increased since therecession began, and if so, whether the underlying causes are transitory or persistent. Our analysessuggest that the natural rate has risen over the past several years, with our preferred estimateimplying an increase from its pre-recession level of close to a percentage point. An assessment ofthe underlying factors responsible for this increase, including labor market mismatch, extendedunemployment benefits, and uncertainty about overall economic conditions, implies that only asmall fraction of this increase is likely to be persistent.

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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 11-160/3.

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Date of creation: 10 Nov 2011
Date of revision:
Handle: RePEc:dgr:uvatin:20110160

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Web page: http://www.tinbergen.nl

Related research

Keywords: equilibrium unemployment; Beveridge curve; structural unemployment; mismatch;

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References

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  1. Schulhofer-Wohl, Sam, 2012. "Negative equity does not reduce homeowners’ mobility," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Feb, pages 1-17.
  2. Joyce Kwok & Mary Daly & Bart Hobijn, 2010. "Labor force participation and the future path of unemployment," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue sep13.
  3. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "The Aftermath of Financial Crises," American Economic Review, American Economic Association, vol. 99(2), pages 466-72, May.
  4. Greg Kaplan & Sam Schulhofer-Wohl, 2010. "Interstate migration has fallen less than you think: consequences of hot deck imputation in the Current Population Survey," Working Papers 681, Federal Reserve Bank of Minneapolis.
  5. Regis Barnichon & Michael Elsby & Bart Hobijn & Aysegul Sahin, 2011. "Which Industries are shifting the Beveridge Curve?," Tinbergen Institute Discussion Papers 11-157/3, Tinbergen Institute.
  6. Vincent Sterk, 2010. "Home Equity, Mobility, and Macroeconomic Fluctuations," DNB Working Papers 265, Netherlands Central Bank, Research Department.
  7. Steven J. Davis & R. Jason Faberman & John C. Haltiwanger, 2009. "The establishment-level behavior of vacancies and hiring," Working Papers 09-14, Federal Reserve Bank of Philadelphia.
  8. Katharine G. Abraham, 1987. "Help-Wanted Advertising, Job Vacancies, and Unemployment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 18(1), pages 207-248.
  9. Ramey, Garey & Shigeru Fujita, 2006. "The Cyclicality of Job Loss and Hiring," University of California at San Diego, Economics Working Paper Series qt4nz8p839, Department of Economics, UC San Diego.
  10. Thijs van Rens, 2004. "Organizational capital and employment fluctuations," Economics Working Papers 944, Department of Economics and Business, Universitat Pompeu Fabra.
  11. Mary Daly & Bart Hobijn, 2010. "Okun’s law and the unemployment surprise of 2009," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue mar8.
  12. Daniel J. Wilson, 2010. "Is the recent productivity boom over?," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue sep20.
  13. Daniel Aaronson & Bhashkar Mazumder & Shani Schechter, 2010. "What is behind the rise in long-term unemployment?," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q II, pages 28-51.
  14. Barnichon, Regis, 2010. "Building a composite Help-Wanted Index," Economics Letters, Elsevier, vol. 109(3), pages 175-178, December.
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Citations

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Cited by:
  1. repec:dgr:uvatin:2011173 is not listed on IDEAS
  2. Michael W.L. Elsby & Bart Hobijn & Aysegül Sahin & Robert G. Valletta, 2011. "The labor market in the Great Recession: an update," Working Paper Series 2011-29, Federal Reserve Bank of San Francisco.
  3. repec:fip:fedfsp:y:2012:i:july23:n:2012-22 is not listed on IDEAS
  4. Daniel Kienzler & Kai Daniel Schmid, 2013. "Monetary Policy and Hysteresis in Potential Output," IMK Working Paper 116-2013, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
  5. Pavlina R. Tcherneva, 2012. "Reorienting Fiscal Policy after the Great Recession," Economics Working Paper Archive wp_719, Levy Economics Institute, The.
  6. Sahin, Aysegul & Song, Joseph & Topa, Giorgio & Violante, Giovanni L, 2012. "Mismatch Unemployment," CEPR Discussion Papers 9093, C.E.P.R. Discussion Papers.
  7. John C. Williams, 2012. "The outlook and monetary policy challenges," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue july23.
  8. John C. Williams, 2012. "The slow recovery: it’s not just housing," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue apr9.
  9. Birol Kanik & Enes Sunel & Temel Taskin, 2012. "Beveridge Egrisi ve Eslesme Fonksiyonu : Turkiye Ornegi," CBT Research Notes in Economics 1224, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  10. Rob Valletta & Katherine Kuang, 2012. "Why is unemployment duration so long?," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue jan30.

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