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Why Has the Natural Rate of Unemployment Increased over Time?

  • Economics


Why has the Natural Rate of Unemployment Increased over Time? CHINHUI JUHN University of Houston KEVIN M. MURPHY University of Chicago ROBERT H. TOPEL University of Chicago Why Has the Natural Rate of Unemployment Increased over Time? IN 1970, when Robert Hall asked, "Why Is the Unemployment Rate So High at Full Employment?" the unemployment rate for adult men stood at 3.5 percent. i That rate, which had been substantially below that level throughout the late 1960s, would climb to 4.4 percent in the recession of 1971. More recently, after the longest economic expansion of the post- war period, the unemployment rate of prime-aged men in the late 1980s settled at just below 5 percent of the labor force. What changes in the American labor market led to this apparent secular increase in the natu- ral rate of unemployment? Twenty years later, we revisit Hall's question and turn up some new answers. This paper studies the evolution of male unemployment and nonpar- ticipation in the U.S. labor force since 1967. In looking at these develop- ments, we have two main goals. The first is to document the substantial This research was supported by the National Science Foundation, the Sloan Founda- tion, and the Bradley Foundation. Topel also acknowledges support from the William La- dany Faculty Research Fund at the Graduate School of Business, University of Chicago. We acknowledge the comments of workshop participants at Chicago, the Board of Gover- nors of the Federal Reserve, Dartmouth College, and Harvard University. 1. Hall (1970). 75 76 Brookings Papers on Economic Activity, 2:1991 and important changes in the amount of nonemployed time reported over the period. Using microdata from the Current Population Survey for more than 500,000 prime-aged men, we examine secular and cyclical changes in nonwork-including both unemployment and nonparticipa- tion in the labor force-and the distribution of these changes among dif- ferent demographic and skill-based

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