Current Unemployment, Historically Contemplated
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Current Unemployment, Historically Contemplated
Current Unemployment, Historically Contemplatedchinhui JuhnUniversity of HoustonKevin M. Murphy University of Chicago and NBERRobert Topel University Current Unemployment, Historically Contemplated of Chicago and NBER37316This Version: May 2002Prepared for the Brookings Pond on Economic Activity, April 4-5. 2002. We thank Panel participants for helpful comments. Earlier versions were presented at the NBER Labor Studies meeting and at the University of Missouri. Murphy and Topel are also Senio Current Unemployment, Historically Contemplatedr Fellows at the Milken Institute. We acknowledge financial support from the Center for the Study of the Economy and the State and the Milken FoundatiCurrent Unemployment, Historically Contemplated
on.https://khothuvien.cori!I.IntroductionTwelve years ago. our Brookings paper "Why has Natural Rate of Unemployment Increased Over Time?" analyzed loCurrent Unemployment, Historically Contemplatedchinhui JuhnUniversity of HoustonKevin M. Murphy University of Chicago and NBERRobert Topel University Current Unemployment, Historically Contemplatedtaken place between 1967 and 1989. Our main conclusion was that a steep and sustained decline in the demand for low skilled workers had reduced the returns to work for the less skilled. This led to high rates of unemployment, labor force withdrawal, and long spells of joblessness for these men. We f Current Unemployment, Historically Contemplatedound that the long-term growth in joblessness was accounted fora roughly equal increase in time spent out of the labor force and time spent unemployedCurrent Unemployment, Historically Contemplated
. We concluded that structural factors, primarily the decline in the demand for low skilled labor, had dramatically changed the prospects for a returnCurrent Unemployment, Historically Contemplatedchinhui JuhnUniversity of HoustonKevin M. Murphy University of Chicago and NBERRobert Topel University Current Unemployment, Historically Contemplatedession that was followed by the longest sustained decline in unemployment in modern U.S. history. By the end of the expansion, the unemployment rate had reached its lowest level since the late 1960s, falling below 4 percent for the first time since 1969. Some macroeconomists argued that the “natural Current Unemployment, Historically Contemplated rate," had permanently shifted to a level at or below 5.0 percent (Stiglitz (1997), Gordon (1998), Staiger, Stock, and Watson (2001)). Because we hadCurrent Unemployment, Historically Contemplated
emphasized changes in the structure of labor demand that made a return to low rates of joblessness unlikely, these facts present a challenge to our 1Current Unemployment, Historically Contemplatedchinhui JuhnUniversity of HoustonKevin M. Murphy University of Chicago and NBERRobert Topel University Current Unemployment, Historically Contemplatedpost-1990 period. If so, we would join a distinguished group of social scientists who2lidve drawn attention d significant empirical phenomenon, only to watch that phenomenon disappear immediately thereafter.1 As it turns out. however, the framework that we developed lor thinking about the pre-1990 e Current Unemployment, Historically Contemplatedvolution ol joblessness also does fairly well in helping to understand jobless time in the post-1990 period.Tn this paper we look in some detail at emCurrent Unemployment, Historically Contemplated
ployment data from the 1990s, revisiting issues raised in our earlier work. Specifically, we ask: (1) Have the trends we identified in our earlier papCurrent Unemployment, Historically Contemplatedchinhui JuhnUniversity of HoustonKevin M. Murphy University of Chicago and NBERRobert Topel University Current Unemployment, Historically Contemplatedssness - been reversed with the fall in aggregate unemployment? (2) Did the ‘90$ expansion really "return" the U.S. labor market to conditions of the late 1960s, as unemployment statistics seem to indicate? (3) Does the economic framework of supply and demand we utilized a decade ago still help in u Current Unemployment, Historically Contemplatednderstanding long-term developments in unemployment, non-employment, and labor force participation?Our answers are surprising. First, the basic trendsCurrent Unemployment, Historically Contemplated
toward longer spells of joblessness and rising non-employment have continued in spite of the prolonged expansion of national output and the concomitaCurrent Unemployment, Historically Contemplatedchinhui JuhnUniversity of HoustonKevin M. Murphy University of Chicago and NBERRobert Topel University Current Unemployment, Historically Contemplatedment to levels close to historical lows is very- misleading.1 Malthus founded the club. His theory that the forces of endogenous population growth doomed the common people to perpetual poverty "explained" why incomes had failed to increase over the period of his data. Publication of Malthus's theory Current Unemployment, Historically Contemplated was followed by centuries of almost continuous progress. More recently, when the returns to college were at a record low in 1979, Richard Freeman offCurrent Unemployment, Historically Contemplated
ered a supply-based theory in "The Over Educated American", only to have the returns to college increase steadily over the next 15 years, reaching a rCurrent Unemployment, Historically Contemplatedchinhui JuhnUniversity of HoustonKevin M. Murphy University of Chicago and NBERRobert Topel University Current Unemployment, Historically Contemplateds of joblessness show that the labor market of the late 1990s is more like the relatively “slack” labor market of the late 1980s than the booming labor market of the late 1960s. Finally, the basic forces of supply and demand identified in our previous paper continue to have explanatory power. The th Current Unemployment, Historically Contemplatedeory does a reasonable job of explaining the trends that have continued, as well as those that have changed.Recent data also provide considerable insiCurrent Unemployment, Historically Contemplated
ght into what has happened in the labor market over the past decade. Over the 1990s, while unemployment was falling, time spent out of the labor forceCurrent Unemployment, Historically Contemplatedchinhui JuhnUniversity of HoustonKevin M. Murphy University of Chicago and NBERRobert Topel University Current Unemployment, Historically Contemplated who have withdrawn from the labor force - at the business cycle peak in 2000 was as high as it was at (he previous cyclical peak of 1989, in spite of the fact (hat the unemployment rate was roughly 2 percentage points lower in 2000. In terms of total joblessness, the oft-praised boom of the 1990s r Current Unemployment, Historically Contemplatedeally represented little in the way of employment progress for American males.While the growth in the amount of time American males spent out of the lCurrent Unemployment, Historically Contemplated
abor force continues a trend found in our earlier research, other features of the data changed in the 1990s. The real wages of less-skilled men, whichCurrent Unemployment, Historically Contemplatedchinhui JuhnUniversity of HoustonKevin M. Murphy University of Chicago and NBERRobert Topel University Current Unemployment, Historically Contemplatedt the 30 year trend toward greater wage inequality has run its course, at least at the bottom of the wage distribution. The data on joblessness reflect the impact of the changing wage trends. The long-term divergence in employment rates between low-wage workers and those with higher wages - which wa Current Unemployment, Historically Contemplateds so pronounced in our earlier work - has stopped, while unemployment and wage gaps across skill groups4https://khothuvien.cori!have narrowed. The conCurrent Unemployment, Historically Contemplated
gruence betweens patterns of change in wages and employment comports with our previous work, which stressed demand-driven wage changes as the dominantCurrent Unemployment, Historically Contemplatedchinhui JuhnUniversity of HoustonKevin M. Murphy University of Chicago and NBERRobert Topel University Current Unemployment, Historically Contemplatedin the composition of the labor force as a source of declining unemployment. Shimer (1998) finds that aging of the labor force is important in explaining the decline in the unemployment, particularly compared to the late 1970s. Katz and Krueger (1999) investigate to what extent the withdrawal of the Current Unemployment, Historically Contemplated incarcerated population from the labor force lead to a drop in the aggregate unemployment rate. Other papers explore explore the role of improvementsCurrent Unemployment, Historically Contemplated
in job search technology. For example, Autor (2000) argues that temporary-help agencies may have facilitated more efficient employer-employee matchesCurrent Unemployment, Historically Contemplatedchinhui JuhnUniversity of HoustonKevin M. Murphy University of Chicago and NBERRobert Topel University Current Unemployment, Historically Contemplatedr (2000), Kuhn and Skulerud (2000)). We show' below that lower unemployment rates in the 1990s are accounted for by a sharp decline in the incidence of spells, while durations of spells have remained high. This fact is inconsistent with a theory built on declining search costs, which would imply sho Current Unemployment, Historically Contemplatedrter unemployment spells.A related line of research compares divergent employment outcomes between the United States and Europe. While these countriesCurrent Unemployment, Historically Contemplated
may have experienced patterns of labor demand during the 1970s and the 1980s, there is widespread belief that more flexible labor markets and wages kCurrent Unemployment, Historically Contemplatedchinhui JuhnUniversity of HoustonKevin M. Murphy University of Chicago and NBERRobert Topel University Current Unemployment, Historically Contemplated Wolfers (2000), Ljungqvist and Sargent (1998), and Bertoia, Blau and5Kahn (2001)) emphasize the importance of interactions between macroeconomic shocks and labor market institutions. These papers find that while macroeconomic variables (oil prices, real interest rates, total factor productivity, an Current Unemployment, Historically Contemplatedd labor share of income) or labor market institution variables (unemployment benefits and duration, union coverage, collective bargaining, employmentCurrent Unemployment, Historically Contemplated
protection policies) alone cannot explain the differences across U.S. and Europe, a model that allows for interaction effects fits the data well. WhilGọi ngay
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