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Current Unemployment, Historically Contemplated

  • Economics


0675-02 BPEA/Juhn Current Unemployment, Historically Contemplated Eleven years ago, our Brookings Paper “Why Has the Natural Rate of Unemployment Increased over Time?” analyzed long-term changes in joblessness among American men.1 We documented the dramatic rise between 1967 and 1989 in both unemployment and nonparticipation in the labor force among prime-aged males. Our main conclusion was that a steep and sustained decline in the demand for low-skilled workers had reduced the returns to work for this group, leading to high rates of unem- ployment, labor force withdrawal, and long spells of joblessness for less- skilled men. We found that time spent out of the labor force and time spent unemployed accounted in roughly equal measure for the long-term growth in joblessness. We concluded that structural factors, primarily the decline in the demand for low-skilled labor, had dramatically changed the prospects for a return to low rates of joblessness any time soon. After that paper was published, things appeared to change. The 1990s opened with a brief recession that was followed by the longest sustained decline in unemployment in modern U.S. history. By the end of that 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 so-called natural rate of unemployment 79 C H I N H U I J U H N University of Houston K E V I N M . M U R P H Y University of Chicago R O B E R T H . T O P E L University of Chicago We thank the Brookings Panel participants for helpful comments. Earlier versions of this paper were presented at the National Bureau of Economic Research Labor Studies meeting and at the University of Missouri. We acknowledge financial support from the Center for the Study of the Economy and the State and the Milken Foundation. 1. Juhn, Murphy, and Topel (1991). 0675-02 BPEA/Juhn 7/22/02 2:18 PM Page 79 had permanently shifted to 5 percent or below.

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