Cyclical and Structural Unemployment

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May 14, 2012

Cyclical and Structural Unemployment

David Altig:

Historical Perspective on Monthly Job Growth, and Jobs Calculator Enhancements: By now, if you’ve been paying attention to the coverage following the April employment report, you know the following: The March to April decline in the unemployment rate from 8.2 percent to 8.1 percent was arithmetically driven by yet another decline in the labor force participation rate (LFPR). The decline in the LFPR, now at its lowest level since the early 1980s, is itself being influenced by a confounding mix of demographic change and other behavioral changes....

[O]ur estimates suggest that roughly... 0.9 percentage points of the decline in the LFPR since the beginning of the past recession can be explained by demographic trends (as the baby boomers age, the labor force will grow more slowly than the total population [ages 16 and up]). Subtracting the demographic trends still leaves 1.5 percentage points to be explained, a number right in line with Brad DeLong’s back-of-the-envelope calculation of “cyclical” LFPR change. As DeLong’s comments make clear, the interpretation of the nondemographic piece of the LFPR change requires, well, interpretation. And the consequences of connecting the dots between changes in the unemployment rate and broader labor market performance are enormous....

DeLong asks:

Are [people who really ought to be in the labor force right now, but who are not] now part of the ‘structurally’ non-employed who we will never see back at work, barring a high-pressure economy of a kind we see at most once in a generation?

As you can see, the answer to that question matters a lot to how we should think about progress on the unemployment rate going forward.

J. Bradford DeLong on May 14, 2012 at 05:18 PM in Economics: Macro, Streams: Economics | Permalink

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