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Have cyclical movements in the unemployment rate become more persistent?

  • Andrew Figura
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    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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    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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    1. Gabriel Perez-Quiros & Margaret M. McConnell, 2000. "Output Fluctuations in the United States: What Has Changed since the Early 1980's?," American Economic Review, American Economic Association, vol. 90(5), pages 1464-1476, December.
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    7. Katharine G. Abraham & Robert Shimer, 2001. "Changes in Unemployment Duration and Labor Force Attachment," NBER Working Papers 8513, National Bureau of Economic Research, Inc.
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      • 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.
    9. 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.
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    12. Barnichon, Regis, 2010. "Productivity and unemployment over the business cycle," Journal of Monetary Economics, Elsevier, vol. 57(8), pages 1013-1025, November.
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