2011-17 | May 2011
More Working Papers
New Evidence on Cyclical and Structural Sources of Unemployment
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%. For U.S. long-term unemployment the split between cyclical and structural factors is closer to 60-40, including during the Great Recession.
Download PDF (pdf, 440.08 kb)