Working Paper

United States of U-Star

Abstract: This paper estimates state-level trend unemployment rates (trend U-star) based on the trend components of unemployment inflows and outflows across unemployment durations. The estimated trend U-stars, particularly the portions attributable to long-termunemployment, have levels and dynamics that vary substantially across states. Long-termunemployment makes a relatively small contribution to trend U-star in agricultural states, but takes a larger share for Rust Belt states and several states in the Sun Belt. While higher educational attainment and population aging put downward pressure on U-star, the effects of industrial structure and labor-market rigidities are mixed. Using the estimates of state-level trend U-star, we revisit previous work on state-level Phillips curves and find that the estimated slopes of forward-looking inflation equations are driven bymovements in trend U-star rather than by cyclical variation in the unemployment rate.

JEL Classification: C41; C53; E24; E27; E32; J21;

https://doi.org/10.17016/FEDS.2026.060

Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: Finance and Economics Discussion Series

Publication Date: 2026-07-25

Number: 2026-060