New Evidenceon Cyclical and Structural Sources of Unemployment
May 1, 2011
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Summary
We provide cross-country evidence on the relative importance of cyclical and structural factors in explaining unemployment, including the sharp rise in U.S. long-term unemployment during the Great Recession of 2007-09. About 75% of the forecast error variance of unemployment is accounted for by cyclical factors-real GDP changes (?Okun‘s Law?), monetary and fiscal policies, and the uncertainty effects emphasized by Bloom (2009). Structural factors, which we measure using the dispersion of industry-level stock returns, account for the remaining 25 percent. For U.S. long-term unemployment the split between cyclical and structural factors is closer to 60-40, including during the Great Recession.
Subject: Asset prices, Financial markets, Labor, Prices, Stock markets, Structural unemployment, Unemployment, Unemployment rate
Keywords: aggregate unemployment equation, Asset prices, dispersion index, Dispersion shock, employment dispersion, index result, long-term unemployment, stock market dispersion index, stock markets, structural unemployment, structural unemployment rate, uncertainty, uncertainty index, unemployment, unemployment duration, unemployment fluctuation, Unemployment rate, unemployment rate shock, WP
Pages:
42
Volume:
2011
DOI:
Issue:
106
Series:
Working Paper No. 2011/106
Stock No:
WPIEA2011106
ISBN:
9781455260416
ISSN:
1018-5941
