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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
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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. Raj Chetty, 2008. "Moral Hazard versus Liquidity and Optimal Unemployment Insurance," Journal of Political Economy, University of Chicago Press, vol. 116(2), pages 173-234, 04.
  2. Greg Kaplan & Sam Schulhofer-Wohl, 2012. "Interstate Migration Has Fallen Less Than You Think: Consequences of Hot Deck Imputation in the Current Population Survey," Demography, Springer, vol. 49(3), pages 1061-1074, August.
  3. Daniel J. Wilson, 2010. "Is the recent productivity boom over?," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue sep20.
  4. Michael R. Darby & John C. Haltiwanger & Mark W. Plant, 1986. "The Ins and Outs of Unemployment: The Ins Win," UCLA Economics Working Papers 411, UCLA Department of Economics.
  5. Michael Elsby & Bart Hobijn & Aysegül Sahin, 2009. "Unemployment dynamics in the OECD," Working Paper Series 2009-04, Federal Reserve Bank of San Francisco.
  6. 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.
  7. Regis Barnichon & Michael Elsby & Bart Hobijn & Aysegül Sahin, 2010. "Which industries are shifting the Beveridge curve?," Working Paper Series 2010-32, Federal Reserve Bank of San Francisco.
  8. Reinhart, Carmen M. & Rogoff, Kenneth S., 2009. "The Aftermath of Financial Crises," Scholarly Articles 11129155, Harvard University Department of Economics.
  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. Reinhart, Carmen & Rogoff, Kenneth, 2009. "The Aftermath of Financial Crises," CEPR Discussion Papers 7209, C.E.P.R. Discussion Papers.
  11. 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.
  12. Sam Schulhofer-Wohl, 2010. "Negative equity does not reduce homeowners' mobility," Working Papers 682, Federal Reserve Bank of Minneapolis.
  13. Bentolila, Samuel & Bertola, Giuseppe, 1990. "Firing Costs and Labour Demand: How Bad Is Eurosclerosis?," Review of Economic Studies, Wiley Blackwell, vol. 57(3), pages 381-402, July.
  14. Thijs van Rens, 2005. "Organizational Capital and Employment Fluctuations," 2005 Meeting Papers 427, Society for Economic Dynamics.
  15. 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.
  16. Vincent Sterk, 2010. "Home Equity, Mobility, and Macroeconomic Fluctuations," DNB Working Papers 265, Netherlands Central Bank, Research Department.
  17. Steven J. Davis & R. Jason Faberman & John C. Haltiwanger, 2010. "The Establishment-Level Behavior of Vacancies and Hiring," NBER Working Papers 16265, National Bureau of Economic Research, Inc.
  18. 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.
  19. 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. 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.
  2. 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.
  3. repec:fip:fedfsp:y:2012:i:july23:n:2012-22 is not listed on IDEAS
  4. John C. Williams, 2012. "The slow recovery: it’s not just housing," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue apr9.
  5. Michael W.L. Elsby & Bart Hobijn & Aysegul Sahin & Robert G. Valletta, 2011. "The Labor Market in the Great Recession: An Update," Tinbergen Institute Discussion Papers 11-173/3, Tinbergen Institute.
  6. Aysegül Sahin & Joseph Song & Giorgio Topa & Giovanni L. Violante, 2012. "Mismatch unemployment," Staff Reports 566, Federal Reserve Bank of New York.
  7. John C. Williams, 2012. "The outlook and monetary policy challenges," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue july23.
  8. Pavlina R. Tcherneva, 2012. "Reorienting Fiscal Policy after the Great Recession," Economics Working Paper Archive wp_719, Levy Economics Institute.
  9. Rob Valletta & Katherine Kuang, 2012. "Why is unemployment duration so long?," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue jan30.
  10. repec:dgr:uvatin:2011173 is not listed on IDEAS

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