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A Search and Matching Approach to Labor Markets: Did the Natural Rate of Unemployment Rise?

  • Mary C. Daly
  • Bart Hobijn
  • Aysegül Sahin
  • Robert G. Valletta

The U.S. unemployment rate has remained stubbornly high since the 2007-2009 recession, leading some observers to conclude that structural rather than cyclical factors are to blame. Relying on a standard job search and matching framework and empirical evidence from a wide array of labor market indicators, we examine whether the natural rate of unemployment has increased since the recession began, and if so, whether the underlying causes are transitory or persistent. Our preferred estimate indicates an increase in the natural rate of unemployment of about one percentage point during the recession and its immediate aftermath, putting the current natural rate at around 6 percent. An assessment of the underlying factors responsible for this increase, including labor market mismatch, extended unemployment benefits, and uncertainty about overall economic conditions, implies that only a small fraction is likely to be persistent.

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Article provided by American Economic Association in its journal Journal of Economic Perspectives.

Volume (Year): 26 (2012)
Issue (Month): 3 (Summer)
Pages: 3-26

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Handle: RePEc:aea:jecper:v:26:y:2012:i:3:p:3-26
Note: DOI: 10.1257/jep.26.3.3
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