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Have cyclical movements in the unemployment rate become more persistent?

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  • Andrew Figura
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    Abstract

    I examine whether the cyclical behavior of unemployment has changed over the post WWII period. Specifically, I test whether cyclical movements in unemployment have become more persistent. Finding that they have, indeed, become more persistent, I then take some initial steps in explaining why. I find that the increase in persistence has affected private nonfarm payroll employment as well as unemployment and that increased persistence appears to be widespread across industries. At the same time, increased persistence owes primarily to greater persistence in job finding rates and greater persistence in unemployment among permanent job losers. This combination suggests that the welfare loss from cyclical increases in unemployment is becoming increasingly concentrated among permanent job losers who become unemployed for extended durations during cyclical downturns.

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    Bibliographic Info

    Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 2011-33.

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    Date of creation: 2011
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    Handle: RePEc:fip:fedgfe:2011-33

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    Related research

    Keywords: Unemployment ; Labor market;

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    1. Jacobson, Louis S & LaLonde, Robert J & Sullivan, Daniel G, 1993. "Earnings Losses of Displaced Workers," American Economic Review, American Economic Association, vol. 83(4), pages 685-709, September.
    2. Lawrence J. Christiano & Terry J. Fitzgerald, 1999. "The Band pass filter," Working Paper 9906, Federal Reserve Bank of Cleveland.
      • Lawrence J. Christiano & Terry J. Fitzgerald, 2003. "The Band Pass Filter," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(2), pages 435-465, 05.
    3. Margaret M. McConnell & Gabriel Perez Quiros, 1997. "Output fluctuations in the United States: what has changed since the early 1980s?," Research Paper 9735, Federal Reserve Bank of New York.
    4. Shaghil Ahmed & Andrew Levin & Beth Anne Wilson, 2002. "Recent U.S. macroeconomic stability: good policies, good practices or good luck?," International Finance Discussion Papers 730, Board of Governors of the Federal Reserve System (U.S.).
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    6. Donald W.K. Andrews, 1990. "Tests for Parameter Instability and Structural Change with Unknown Change Point," Cowles Foundation Discussion Papers 943, Cowles Foundation for Research in Economics, Yale University.
    7. Robert Shimer, 2007. "Reassessing the Ins and Outs of Unemployment," NBER Working Papers 13421, National Bureau of Economic Research, Inc.
    8. Barnichon, Regis, 2010. "Productivity and unemployment over the business cycle," Journal of Monetary Economics, Elsevier, vol. 57(8), pages 1013-1025, November.
    9. Shigeru Fujita & Garey Ramey, 2007. "The cyclicality of separation and job finding rates," Working Papers 07-19, Federal Reserve Bank of Philadelphia.
    10. Louis S. Jacobson & Robert J. LaLonde & Daniel G. Sullivan, 1993. "Long-term earnings losses of high-seniority displaced workers," Economic Perspectives, Federal Reserve Bank of Chicago, issue Nov, pages 2-20.
    11. Katharine G. Abraham & Robert Shimer, 2001. "Changes in Unemployment Duration and Labor Force Attachment," NBER Working Papers 8513, National Bureau of Economic Research, Inc.
    12. Charles R. Nelson, 2000. "Output fluctuations in the United States: what has changed since the early 1980s? comments," Proceedings, Federal Reserve Bank of San Francisco.
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