Has the Great Recession Raised U.S. Structural Unemployment?

Marcello Estevão and Evridiki Tsounta

No 2011/105, IMF Working Papers from International Monetary Fund

Abstract: The recent crisis has had differential effects across U.S. states and industries causing a wide geographic dispersion in skill mismatches and housing market performance. We document these facts and, using data from the 50 states plus D.C from 1991 to 2008, we present econometric evidence that supports that changes in state-level unemployment rates are linked to skill mismatches and housing market performance even after controlling for cyclical effects. This result suggests some causality going from mismatches and housing conditions to unemployment rates. The numerical estimates imply that the structural unemployment rate in 2010 was about 1¾ percentage points higher than before the onset of the housing market meltdown at end-2006. Reversing this increase may require targeted active labor market policies and measures to expedite the adjustment in housing markets, as our results suggest weak housing market conditions interact negatively with skill mismatches to produce higher unemployment rates in the United States.

Keywords: WP; equilibrium unemployment; housing market condition; business cycle; real GDP; unemployment; skills mismatches; foreclosures; housing market dispersion; housing hurdles; housing market indicator; housing sector; adjustment mechanism; housing market strain; housing affordability; aggregate equilibrium unemployment rate in the United States; labor market statistics; labor market impact; labor market mismatch; Unemployment rate; Housing prices; Employment; Labor markets (search for similar items in EconPapers)
Pages: 46
Date: 2011-05-01
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Citations: View citations in EconPapers (30)

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