Fed report: Joblessness cyclical not structural

By Reuters
Posted March 21 at 12:41 p.m.

The current high rate of unemployment in the United States is primarily due to cyclical factors, not structural changes in the economy, according to researchers at the San Francisco Federal Reserve Bank.

The study runs counter to worries among some top Fed policymakers that undesirable upward pressure on wages, and thus inflation, could kick in even when unemployment remains relatively high — a situation that could have implications for U.S. monetary policy.

According to the research, recent college graduates are finding it just as hard to get work as other job seekers.

Since college grads are among the best educated and most mobile in the labor force, their difficulty finding jobs suggests it is labor market weakness as a whole, rather than mismatches between workers’ skills and employees’ needs, that is keeping would-be workers from getting jobs, the researchers said.

Recent college grads are also unlikely to be motivated by the extension of unemployment insurance, often cited as a reason for the elevated unemployment rate.

“The current unemployment rate trends are reminiscent of the 2001 recession and the subsequent jobless recovery that continued through 2004,” research advisor Bart Hobijn and research associates Colin Gardiner and Theodore Wiles said in the bank’s latest Economic Letter.

“This holds for both the overall unemployment rate and for those of recent college graduates, suggesting that structural factors are not quantitatively important in driving the overall unemployment rate, just as they were largely irrelevant after the 2001 recession,” they wrote.

Some U.S. central bank officials, including Minneapolis Fed President Narayana Kocherlakota, have suggested that structural shifts in the economy since the Great Recession have pushed up the new “normal” for joblessness.

A higher norm for U.S. unemployment means upward pressures on wages could start to build even when the jobless rate is quite high by historical standards.

The San Francisco Fed research suggests that such concerns are remote.

“Given the current weak labor market, we expect the labor market outcomes of the recent college graduate cohort to remain depressed well into the future,” the researchers said.

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