The Long-Term Unemployed and the Wages of New Hires

Dent, Robert C.; Kapon, Samuel; Karahan, Fatih; Pugsley, Benjamin; Şahin, Ayşegül

Discussion Paper

The Long-Term Unemployed and the Wages of New Hires

Abstract: This is the third in a series of blog posts on the topic of measuring labor market slack. In this post, we assess the relationships between short- and long-term unemployment and wages by comparing the differences in states’ experiences over the business cycle. While all states felt the impact of the Great Recession, some fared better than others. Consequently, it is possible to use differences in the composition and shifts of short- and long-term unemployment to determine whether short-term unemployment exerts a greater influence on wage determination. The results suggest that there is little difference in how long-term and short-term unemployment affect wages, and as a consequence, the long-term unemployed shouldn’t be dismissed when evaluating labor market slack.

Keywords: wage inflation; slack; labor;

JEL Classification: E24;