Has the Great Recession Raised U.S. Structural Unemployment?
IMF Working Papers, May 1, 2011
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- Has the Great Recession Raised U.S. Structural Unemployment?
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Bibliographic details
- Authors: Marcello M. Estevão, Evridiki Tsounta
- Published: May 1, 2011
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781455260409.001
Overview
- Research question: Whether the Great Recession raised U.S. structural (equilibrium) unemployment.
- Core finding: The structural unemployment rate in 2010 was about 1¾ percentage points higher than before the onset of the housing market meltdown at end-2006.
- Main interpretation: State-level skill mismatches and housing market performance contributed causally to higher unemployment rates, beyond cyclical effects.
Data and Empirical Approach
- Geographic and temporal scope: Data from the 50 states plus D.C from 1991 to 2008.
- Empirical strategy: Econometric analysis linking changes in state-level unemployment rates to measures of skill mismatches and housing market performance while controlling for cyclical effects.
- Observed heterogeneity: The crisis produced wide geographic dispersion in skill mismatches and housing market performance across states and industries.
Key Findings and Statistics
- Structural unemployment increase: In 2010, the structural unemployment rate was about 1¾ percentage points higher than before end-2006.
- Relationship between variables:
- Changes in state-level unemployment rates are linked to skill mismatches even after controlling for cyclical factors.
- Changes in state-level unemployment rates are linked to housing market performance even after controlling for cyclical factors.
- Weak housing market conditions interact negatively with skill mismatches to produce higher unemployment rates.
- Geographic dispersion: The recent crisis caused wide geographic dispersion in both skill mismatches and housing market performance across U.S. states and industries.
Policy Implications and Recommendations
- Reversing the increase in structural unemployment may require:
- Targeted active labor market policies aimed at reducing skill mismatches.
- Measures to expedite adjustment in housing markets to alleviate housing-related constraints on labor market mobility and hiring.
- Policy rationale: Because housing market strain and skill mismatches jointly contribute to higher unemployment, addressing both dimensions is important to reduce structural unemployment.
Subjects and Keywords (as listed)
- Subjects: Employment, Housing prices, Labor, Labor markets, Prices, Unemployment, Unemployment rate
- Keywords: adjustment mechanism, aggregate equilibrium unemployment rate in the United States, business cycle, Employment, equilibrium unemployment, foreclosures, housing affordability, housing hurdles, housing market condition, housing market dispersion, housing market indicator, housing market strain, Housing prices, housing sector, labor market impact, labor market mismatch, labor market statistics, Labor markets, real GDP, skills mismatches, unemployment, Unemployment rate, WP
IMF Working Paper by Marcello M. Estevão and Evridiki Tsounta, May 1, 2011.