Amerisclerosis? The Puzzle of Rising U.S. Unemployment Persistence

Olivier Coibion, Yuriy Gorodnichenko and Dmitri Koustas ()
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Dmitri Koustas: University of Chicago

No 7715, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: The persistence of U.S. unemployment has risen with each of the last three recessions, raising the specter that future U.S. recessions might look more like the Eurosclerosis experience of the 1980s than traditional V-shaped recoveries of the past. In this paper, we revisit possible explanations for this rising persistence. First, we argue that financial shocks do not systematically lead to more persistent unemployment than monetary policy shocks, so these cannot explain the rising persistence of unemployment. Second, monetary and fiscal policies can account for only part of the evolving unemployment persistence. Therefore, we turn to a third class of explanations: propagation mechanisms. We focus on factors consistent with four other cyclical patterns which have evolved since the early 1980 s: a rising cyclicality in long-term unemployment, lower regional convergence after downturns, rising cyclicality in disability claims, and missing disinflation. These factors include declining labor mobility, changing age structures, and the decline in trust among Americans. To determine how these factors affect unemployment persistence, this paper exploits regional variation in labor market outcomes across Western Europe and North America during 1970-1990, in contrast to most previous work focusing either on cross-country variation or regional variation within countries. The results suggest that only cultural factors can account for the rising persistence of unemployment in the U.S., but the evolution in mobility and demographics over time should have more than offset the effects of culture.

Keywords: labor mobility; unemployment persistence; trust; demographics (search for similar items in EconPapers)
JEL-codes: E24 E32 E52 J64 R11 R23 (search for similar items in EconPapers)
Pages: 83 pages
Date: 2013-11
New Economics Papers: this item is included in nep-geo, nep-mac and nep-pke
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Citations: View citations in EconPapers (11)

Published - published in: Brookings Papers on Economic Activity, 2013, 47 (2), 193-26

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Journal Article: Amerisclerosis? The Puzzle of Rising U.S. Unemployment Persistence (2013)
Working Paper: Amerisclerosis? The Puzzle of Rising U.S. Unemployment Persistence (2013)
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