Saturday, September 1, 2012

US unemployment due to cyclical, not structural reasons - Jackson Hole paper

    The high number of unemployed, a politically charged issue in the U.S. presidential campaign, is mainly due to the depth of the economic slump following the financial crises rather than structural factors, according to a paper presented to the Jackson Hole Symposium.
    And even the large number of long-term unemployed, which exceeds that of previous recessions, is caused by the severity of the recession not by structural factors that are beyond the reach of central banks, according to the paper by Edward Lazear of Stanford University and James Spletzer of the U.S. Census Bureau.
    Their finding has implications for monetary policy because “cyclical declines in employment are the explicit target of the US Federal Reserve bank and at least implicitly are the concern of the central banks of other countries as well,” Lazear and Spletzer wrote.
    Their paper was presented to central bankers, finance ministry officials and other financial market participants during a morning session on the last day of the conference.

   The high rates of unemployment that followed the global economic crises and recession from 2007-2009 lead many observers to conclude that structural changes have occurred in the labor market and the days of low unemployment will never return.
    But Lazear and Spletzer cannot find any support for this thesis.
    “An analysis of labor market data suggests that there are no structural changes that can explain movements in unemployment rates over recent years, they wrote in  “The United States Labor Market: Staus Quo or A New Normal.” 
    “The current recession does not appear fundamentally different from prior ones, except that it is worse,” they said, adding:
    “One exception is that the ratio of long-term unemployed to total unemployed is higher than it was in prior recessions including recessions with comparable unemployment rates. However, this is not due to any observed structural change, but rather to the depth of the current recession.”


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