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The Labor Market in the Great Recession: An Update

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  • Michael W.L. Elsby

    (University of Edinburgh)

  • Bart Hobijn

    (VU University Amsterdam, Federal Reserve Bank of San Francisco)

  • Aysegul Sahin

    (Federal Reserve Bank of New York)

  • Robert G. Valletta

    (Federal Reserve Bank of San Francisco)

Abstract

Since the end of the Great Recession in mid-2009, the unemployment rate has recovered slowly, falling by only one percentage point from its peak. We find that the lackluster labor market recovery can be traced in large part to weakness in aggregate demand; only a small part seems attributable to increases in labor market frictions. This continued labor market weakness has led to the highest level of long-term unemployment in the U.S. in the postwar period, and a blurring of the distinction between unemployment and nonparticipation. We show that flows from nonparticipation to unemployment are important for understanding the recent evolution of the duration distribution of unemployment. Simulations that account for these flows suggest that the U.S. labor market is unlikely to be subject to high levels of structural long-term unemployment after aggregate demand recovers.

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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 11-173/3.

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Date of creation: 08 Dec 2011
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Handle: RePEc:dgr:uvatin:20110173

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

Related research

Keywords: Labor market dynamics; long-term unemployment; unemployment duration;

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References

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  1. Jesse Rothstein, 2011. "Unemployment Insurance and Job Search in the Great Recession," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 43(2 (Fall)), pages 143-213.
  2. Abraham, Katharine G & Katz, Lawrence F, 1986. "Cyclical Unemployment: Sectoral Shifts or Aggregate Disturbances?," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 94(3), pages 507-22, June.
  3. Regis Barnichon & Michael Elsby & Bart Hobijn & Aysegül Sahin, 2010. "Which industries are shifting the Beveridge curve?," Working Paper Series, Federal Reserve Bank of San Francisco 2010-32, Federal Reserve Bank of San Francisco.
  4. Mary Daly & Bart Hobijn & Aysegul Sahin & Robert Valletta, 2011. "A Rising Natural Rate of Unemployment: Transitory or Permanent?," Tinbergen Institute Discussion Papers, Tinbergen Institute 11-160/3, Tinbergen Institute.
  5. Makoto Nakajima, 2011. "A Quantitative Analysis of Unemployment Benefit Extensions," Global COE Hi-Stat Discussion Paper Series, Institute of Economic Research, Hitotsubashi University gd10-175, Institute of Economic Research, Hitotsubashi University.
  6. repec:dgr:uvatin:2011160 is not listed on IDEAS
  7. 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, Federal Reserve Bank of Minneapolis 681, Federal Reserve Bank of Minneapolis.
  8. Olivier Jean Blanchard & Peter Diamond, 1990. "Ranking, Unemployment Duration, and Wages," NBER Working Papers 3387, National Bureau of Economic Research, Inc.
  9. Daniel Aaronson & Bhashkar Mazumder & Shani Schechter, 2010. "What is behind the rise in long-term unemployment?," Economic Perspectives, Federal Reserve Bank of Chicago, Federal Reserve Bank of Chicago, issue Q II, pages 28-51.
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Cited by:
  1. Andreas Hornstein, 2012. "Accounting for unemployment: the long and short of it," Working Paper, Federal Reserve Bank of Richmond 12-07, Federal Reserve Bank of Richmond.
  2. Sedláček, Petr, 2014. "Match efficiency and firms' hiring standards," Journal of Monetary Economics, Elsevier, Elsevier, vol. 62(C), pages 123-133.

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