Abstract
Headline employment numbers have been consistent with previous recoveries from recession. Behind the headlines, however, there are troubling data that suggest that the recovery of labor markets is weaker than what would be suggested by prior experience. In particular, labor force participation is weaker than expected, and the duration of unemployment has been longer. This paper describes the dimensions of the problems, their implications, and issues concerning whether the U.S. Federal Reserve could have done more to forestall them—particularly with respect to its Large Scale Asset Purchases program.
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Notes
Aaronson, Mazumder, and Schechter [2010] apply estimates from Katz and Meyer [1990] and Card and Levine [2000] of the elasticity of increases in the maximum eligibility time for unemployment insurance benefits on the duration of unemployment to the current context. These calculations suggest that federal extensions may account for between 10 and 25 percent of the observed rise in mean durations from July 2008 through December 2009. Some caution should be applied to these estimates, since they rely on strong assumptions.
See, for example, Sack [2009].
References
Aaronson, Daniel, Mazumder, Bhashkar, and Schecter, Shani . 2010. “What is the Rise in Long-Term Unemployment?” Economic Perspectives, 34 (2): 28–51.
Aaronson, Daniel, Brave, Scott, and Schechter, Shani . 2009. “How Does Labor Adjustment in this Recession Compare to the Past.” Chicago Fed Letter, June.
Card, David, and Levine, Phillip B. 2000. “Extended Benefits and the Duration of UI Spells: Evidence from the New Jersey Extended Benefit Program.” Journal of Public Economics, 78 (1–2): 107–138.
Katz, Lawrence F., and Meyer, Bruce D. 1990. “The Impact of the Potential Duration of Unemployment Benefits on the Duration of Unemployment.” Journal of Public Economics, 41 (1): 45–72.
Sack, Brian . 2009. “The Fed's Expanded Balance Sheet.” Remarks given at New York University, December 2.
Additional information
Remarks delivered at the NABE Policy Conference, March 9, 2010.
*Charles L. Evans is the ninth president and chief executive officer of the Federal Reserve Bank of Chicago. In that capacity, he serves on the Federal Open Market Committee (FOMC), the Federal Reserve System's monetary policymaking body. Before becoming president, Evans served as director of research and senior vice president, supervising the Bank's research on monetary policy, banking, financial markets, and regional economic conditions. Prior to that, Evans was a vice president and senior economist with responsibility for the macroeconomics research group. His personal research has focused on measuring the effects of monetary policy on U.S. economic activity, inflation, and financial market prices. It has been published in prominent journals and other publications. Evans has taught at the University of Chicago, the University of Michigan, and the University of South Carolina. He received a bachelor's degree in economics from the University of Virginia and a doctorate in economics from Carnegie-Mellon University.
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Evans, C. Labor Markets and Monetary Policy. Bus Econ 45, 152–157 (2010). https://doi.org/10.1057/be.2010.17
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DOI: https://doi.org/10.1057/be.2010.17