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The labor market in the Great Recession: an update

  • Michael Elsby
  • Bart Hobijn
  • Aysegül Sahin
  • Robert G. Valletta

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. ; Powerpoint supplement available at

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Paper provided by Federal Reserve Bank of San Francisco in its series Working Paper Series with number 2011-29.

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Date of creation: 2011
Date of revision:
Handle: RePEc:fip:fedfwp:2011-29
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  1. Mary Daly & Bart Hobijn & Aysegul Sahin & Robert Valletta, 2011. "A Rising Natural Rate of Unemployment: Transitory or Permanent?," Tinbergen Institute Discussion Papers 11-160/3, Tinbergen Institute.
  2. Stephen Nickell, 1997. "Unemployment and Labor Market Rigidities: Europe versus North America," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 55-74, Summer.
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  4. Blanchard, Olivier Jean & Diamond, Peter A, 1994. "Ranking, Unemployment Duration, and Wages," Review of Economic Studies, Wiley Blackwell, vol. 61(3), pages 417-34, July.
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  7. Greg Kaplan & Sam Schulhofer-Wohl, 2011. "Interstate migration has fallen less than you think: consequences of hot deck imputation in the Current Population Survey," Staff Report 458, Federal Reserve Bank of Minneapolis.
  8. Regis Barnichon & Michael Elsby & Bart Hobijn & Aysegül Sahin, 2010. "Which industries are shifting the Beveridge curve?," Working Paper Series 2010-32, Federal Reserve Bank of San Francisco.
  9. 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.
  10. Robert Shimer, 2007. "Reassessing the Ins and Outs of Unemployment," NBER Working Papers 13421, National Bureau of Economic Research, Inc.
  11. Daniel Aaronson & Bhashkar Mazumder & Shani Schechter, 2010. "What is behind the rise in long-term unemployment?," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q II, pages 28-51.
  12. Robert Shimer, 2008. "The Probability of Finding a Job," American Economic Review, American Economic Association, vol. 98(2), pages 268-73, May.
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