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The United States Labor Market: Status Quo or A New Normal?

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  • Edward P. Lazear
  • James R. Spletzer

Abstract

The recession of 2007-09 witnessed high rates of unemployment that have been slow to recede. This has led many to conclude that structural changes have occurred in the labor market and that the economy will not return to the low rates of unemployment that prevailed in the recent past. Is this true? The question is important because central banks may be able to reduce unemployment that is cyclic in nature, but not that which is structural. An analysis of labor market data suggests that there are no structural changes that can explain movements in unemployment rates over recent years. Neither industrial nor demographic shifts nor a mismatch of skills with job vacancies is behind the increased rates of unemployment. Although mismatch increased during the recession, it retreated at the same rate. The patterns observed are consistent with unemployment being caused by cyclic phenomena that are more pronounced during the current recession than in prior recessions.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18386.

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Date of creation: Sep 2012
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Handle: RePEc:nbr:nberwo:18386

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References

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  1. Hilary W. Hoynes & Douglas L. Miller & Jessamyn Schaller, 2012. "Who Suffers During Recessions?," NBER Working Papers 17951, National Bureau of Economic Research, Inc.
  2. Daniel Aaronson & Jonathan Davis & Luojia Hu, 2012. "Explaining the decline in the U.S. labor force participation rate," Chicago Fed Letter, Federal Reserve Bank of Chicago, issue Mar.
  3. Lilien, David M, 1982. "Sectoral Shifts and Cyclical Unemployment," Journal of Political Economy, University of Chicago Press, vol. 90(4), pages 777-93, August.
  4. Jesse Rothstein, 2012. "The Labor Market Four Years into the Crisis: Assessing Structural Explanations," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 65(3), pages 437-500, July.
  5. Abraham, Katharine G. & Katz, Lawrence F., 1986. "Cyclical Unemployment: Sectoral Shifts or Aggregate Disturbances?," Scholarly Articles 3442781, Harvard University Department of Economics.
  6. 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.
  7. Fernando Ferreira & Joseph Gyourko & Joseph Tracy, 2012. "Housing busts and household mobility: an update," Economic Policy Review, Federal Reserve Bank of New York, issue Nov, pages 1-15.
  8. Marcello M. Estevão & Evridiki Tsounta, 2011. "Has the Great Recession Raised U.S. Structural Unemployment?," IMF Working Papers 11/105, International Monetary Fund.
  9. 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.
  10. Kyle F. Herkenhoff & Lee E. Ohanian, 2011. "Labor Market Dysfunction During the Great Recession," NBER Working Papers 17313, National Bureau of Economic Research, Inc.
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As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Monetary or fiscal stimulus can help only if unemployment is cyclical; otherwise, if unemployment is structural expansionary policies will lead only to inflation. Careful recent analyses indicate that unemployment is mainly cyclical in the US
    by Blog Admin in British Politics and Policy at LSE on 2012-10-24 16:00:33
  2. Given the enormity of the short- and long-run fiscal challenges facing the US, the lack of policy detail from both presidential candidates is disappointing
    by Blog Admin in British Politics and Policy at LSE on 2012-10-25 13:00:36
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Cited by:
  1. Olivier Blanchard & Florence Jaumotte & Prakash Loungani, 2014. "Labor market policies and IMF advice in advanced economies during the Great Recession," IZA Journal of Labor Policy, Springer, vol. 3(1), pages 1-23, December.
  2. Ulf Rinne & Klaus F Zimmermann, 2013. "Is Germany the North Star of Labor Market Policy?," IMF Economic Review, Palgrave Macmillan, vol. 61(4), pages 702-729, December.
  3. Weshah Razzak, 2014. "New Zealand Labour Market Dynamics: Pre- and Post-global Financial Crisis," Treasury Working Paper Series 14/03, New Zealand Treasury.
  4. Menzie D. Chinn & Laurent Ferrara & Valérie Mignon, 2013. "Post-recession US Employment through the Lens of a Non-linear Okun’s law," NBER Working Papers 19047, National Bureau of Economic Research, Inc.
  5. Peter Diamond, 2013. "Cyclical Unemployment, Structural Unemployment," IMF Economic Review, Palgrave Macmillan, vol. 61(3), pages 410-455, August.
  6. John C. Williams, 2013. "The economy and monetary policy in uncertain times," Speech 115, Federal Reserve Bank of San Francisco.
  7. Neil Mehrotra & Dmitriy Sergeyev, 2013. "Sectoral Shocks, the Beveridge Curve and Monetary Policy," 2013 Meeting Papers 919, Society for Economic Dynamics.
  8. repec:fip:fedfsp:y:2013:i:jan.14 is not listed on IDEAS
  9. Richard B. Freeman, 2013. "Failing the Test? The Flexible U.S. Job Market in the Great Recession," NBER Working Papers 19587, National Bureau of Economic Research, Inc.
  10. Philippe Bergevin, . "Still Standing in Line: Addressing a Mismatch of Skills and Jobs in the Canadian Labour Market," e-briefs 154, C.D. Howe Institute.
  11. Robert J. Gordon, 2013. "The Phillips Curve is Alive and Well: Inflation and the NAIRU During the Slow Recovery," NBER Working Papers 19390, National Bureau of Economic Research, Inc.
  12. Summerfield, Fraser, 2014. "Labor Market Conditions, Skill Requirements and Education Mismatch," CLSSRN working papers clsrn_admin-2014-19, Vancouver School of Economics, revised 28 Apr 2014.
  13. Valletta, Robert G., 2013. "House lock and structural unemployment," Labour Economics, Elsevier, vol. 25(C), pages 86-97.

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