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Unemployment after the recession: a new natural rate?

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  • Murat Tasci
  • Saeed Zaman

Abstract

The past recession has hit the labor market especially hard, and economists are wondering whether some fundamentals of the market have changed because of that blow. Many are suggesting that the natural rate of long-term unemployment—the level of unemployment an economy can’t go below—has shifted permanently higher. We use a new measure that is based on the rates at which workers are finding and losing jobs and which provides a more accurate assessment of the natural rate. We find that the natural rate of unemployment has indeed shifted higher—but much less so than has been suggested. Surprising trends in both the job-finding and job-separation rates explain much about the current state of the unemployment rate.

Suggested Citation

  • Murat Tasci & Saeed Zaman, 2010. "Unemployment after the recession: a new natural rate?," Economic Commentary, Federal Reserve Bank of Cleveland, issue Sep.
  • Handle: RePEc:fip:fedcec:y:2010:i:sep08:n:2010-11
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    References listed on IDEAS

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    1. Guillaume Rocheteau, 2006. "Understanding unemployment," Economic Commentary, Federal Reserve Bank of Cleveland, issue Oct.
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    Cited by:

    1. Tasci, Murat & Zenker, Mary, 2011. "Labor market rigidity, unemployment, and the Great Recession," Economic Commentary, Federal Reserve Bank of Cleveland, issue June.
    2. Todd E. Clark, 2012. "Policy rules in macroeconomic forecasting models," Economic Commentary, Federal Reserve Bank of Cleveland, issue Oct.
    3. Mark E. Schweitzer & Murat Tasci, 2013. "What constitutes substantial employment gains in today’s labor market?," Economic Commentary, Federal Reserve Bank of Cleveland, issue Jun.
    4. Roy J. Rotheim, 2013. "The economist who mistook his model for a market," Chapters,in: Teaching Post Keynesian Economics, chapter 2, pages 34-55 Edward Elgar Publishing.
    5. Julie L. Hotchkiss & M. Melinda Pitts & Fernando Rios-Avila, 2012. "A closer look at nonparticipants during and after the Great Recession," FRB Atlanta Working Paper 2012-10, Federal Reserve Bank of Atlanta.
    6. Luis E. Arango & Luz A. Flórez, 2016. "Determinants of structural unemployment in Colombia. A search approach," Borradores de Economia 969, Banco de la Republica de Colombia.

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