New Evidenceon Cyclical and Structural Sources of Unemployment

By Jinzhu Chen, Bharat Trehan, Prakash Kannan, Prakash Loungani

May 1, 2011

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Jinzhu Chen, Bharat Trehan, Prakash Kannan, and Prakash Loungani. New Evidenceon Cyclical and Structural Sources of Unemployment, (USA: International Monetary Fund, 2011) accessed November 21, 2024

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

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

Publication Details

Pages:

42
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2011/106
Stock No:

WPIEA2011106
ISBN:

9781455260416
ISSN:

1018-5941

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