Home About Latest Browse RSS Advanced Search

Federal Reserve Bank of Cleveland
Working Papers (Old Series)
The ins and outs of unemployment in the long run: a new estimate for the natural rate?
Murat Tasci

In this paper, we present a simple, reduced form model of comovements in real activity and unemployment flows and use it to uncover the trend changes in these flows, which determine the trend in the unemployment rate. We argue that this trend rate has several key features that are reminiscent of a “natural rate.” We show that the natural rate, measured this way, has been relatively stable in the last decade, even after the last recession hit the U.S. economy. This relatively muted change was due to two opposing trend changes: On one hand, the trend in the job-finding rate, after being relatively stable for decades, declined by a significant margin in the last decade, pushing trend unemployment up. On the other hand, the separation rate has somewhat offset this effect with a continued secular decline since the early 1980s. We also show that, contrary to business-cycle frequency movements, most of the low-frequency variation in the unemployment rate could be accounted for by changes in the trend of separation rates, not job-finding rates. The notable exception is the last decade, when clear trend changes in both flows imply opposing effects on the trend unemployment rate and slower worker reallocation in the U.S. economy.

Download Full text
Cite this item
Murat Tasci, The ins and outs of unemployment in the long run: a new estimate for the natural rate?, Federal Reserve Bank of Cleveland, Working Papers (Old Series) 1017, 2010, revised 01 Sep 2011.
More from this series
JEL Classification:
Subject headings:
Keywords: Unemployment
For corrections, contact 4D Library ()
Fed-in-Print is the central catalog of publications within the Federal Reserve System. It is managed and hosted by the Economic Research Division, Federal Reserve Bank of St. Louis.

Privacy Legal