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A Rising Natural Rate of Unemployment: Transitory or Permanent?

Author

Listed:
  • Mary Daly

    (Federal Reserve Bank)

  • Bart Hobijn

    (Federal Reserve Bank, and VU University Amsterdam)

  • Aysegul Sahin

    (Federal Reserve Bank)

  • Robert Valletta

    (Federal Reserve Bank)

Abstract

The U.S. unemployment rate has remained stubbornly high since the 2007-2009 recessionleading many to conclude that structural, rather than cyclical, factors are to blame. Relying on astandard job search and matching framework and empirical evidence from a wide array of labormarket indicators, we examine whether the natural rate of unemployment has increased since therecession began, and if so, whether the underlying causes are transitory or persistent. Our analysessuggest that the natural rate has risen over the past several years, with our preferred estimateimplying an increase from its pre-recession level of close to a percentage point. An assessment ofthe underlying factors responsible for this increase, including labor market mismatch, extendedunemployment benefits, and uncertainty about overall economic conditions, implies that only asmall fraction of this increase is likely to be persistent.

Suggested Citation

  • 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.
  • Handle: RePEc:tin:wpaper:20110160
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    File URL: http://papers.tinbergen.nl/11160.pdf
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    References listed on IDEAS

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    Cited by:

    1. repec:fip:fedfsp:y:2012:i:july23:n:2012-22 is not listed on IDEAS
    2. Chinn, Menzie & Ferrara, Laurent & Mignon, Valérie, 2014. "Explaining US employment growth after the great recession: The role of output–employment non-linearities," Journal of Macroeconomics, Elsevier, vol. 42(C), pages 118-129.
    3. Ay?egül ?ahin & Joseph Song & Giorgio Topa & Giovanni L. Violante, 2014. "Mismatch Unemployment," American Economic Review, American Economic Association, vol. 104(11), pages 3529-3564, November.
    4. repec:eee:macchp:v2-2131 is not listed on IDEAS
    5. Michael W.L. Elsby & Bart Hobijn & Aysegul Sahin & Robert G. Valletta, 2011. "The Labor Market in the Great Recession: An Update," Tinbergen Institute Discussion Papers 11-173/3, Tinbergen Institute.
    6. John C. Williams, 2012. "The outlook and monetary policy challenges," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue july23.
    7. repec:eee:ecmode:v:69:y:2018:i:c:p:291-300 is not listed on IDEAS
    8. Robert G. Valletta & Katherine Kuang, 2012. "Why is unemployment duration so long?," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue jan30.

    More about this item

    Keywords

    equilibrium unemployment; Beveridge curve; structural unemployment; mismatch;

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers

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