Has the Great Recession Raised U.S. Structural Unemployment?

Author/Editor:

Marcello M. Estevão ; Evridiki Tsounta

Publication Date:

May 1, 2011

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

The recent crisis has had differential effects across U.S. states and industries causing a wide geographic dispersion in skill mismatches and housing market performance. We document these facts and, using data from the 50 states plus D.C from 1991 to 2008, we present econometric evidence that supports that changes in state-level unemployment rates are linked to skill mismatches and housing market performance even after controlling for cyclical effects. This result suggests some causality going from mismatches and housing conditions to unemployment rates. The numerical estimates imply that the structural unemployment rate in 2010 was about 1¾ percentage points higher than before the onset of the housing market meltdown at end-2006. Reversing this increase may require targeted active labor market policies and measures to expedite the adjustment in housing markets, as our results suggest weak housing market conditions interact negatively with skill mismatches to produce higher unemployment rates in the United States.

Series:

Working Paper No. 11/105

Subject:

Frequency:

Bimonthly

English

Publication Date:

May 1, 2011

ISBN/ISSN:

9781455260409/1018-5941

Stock No:

WPIEA2011105

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

46

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