43 Pages Posted: 20 May 2011
Date Written: May 2011
We provide cross-country evidence on the relative importance of cyclical and structural factors in explaining unemployment, including the sharp rise in U.S. long-term unemployment during the Great Recession of 2007-09. About 75% of the forecast error variance of unemployment is accounted for by cyclical factors-real GDP changes (Okun‘s Law), monetary and fiscal policies, and the uncertainty effects emphasized by Bloom (2009). Structural factors, which we measure using the dispersion of industry-level stock returns, account for the remaining 25 percent. For U.S. long-term unemployment the split between cyclical and structural factors is closer to 60-40, including during the Great Recession.
Suggested Citation: Suggested Citation
Chen, Jinzhu and Kannan, Prakash and Trehan, Bharat and Loungani, Prakash, New Evidence on Cyclical and Structural Sources of Unemployment (May 2011). IMF Working Papers, Vol. , pp. 1-42, 2011. Available at SSRN: https://ssrn.com/abstract=1847339