Economic Brief

September 2011, No. 11-09

Potential Causes and Implications of the Rise in Long-Term Unemployment

Andreas Hornstein, Thomas A. Lubik and Jessie Romero

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Long-term unemployment rose dramatically during the recent recession and remains elevated. A primary cause may be the fact that more workers with inherently low job finding rates have become unemployed. This would suggest that the natural rate of unemployment has increased, and that additional monetary stimulus may have only a limited effect on reducing unemployment.

Additional Resources

Aaronson, Daniel, Bhashkar Mazumder, and Shani Schechter, "What is Behind the Rise in Long-Term Unemployment?" Federal Reserve Bank of Chicago Economic Perspectives, Second Quarter 2010, vol. 34, no. 2, pp. 28-51.

Daly, Mary, Bart Hobijn, and Rob Valletta, "The Recent Evolution of the Natural Rate of Unemployment," Federal Reserve Bank of San Francisco Working Paper 2011-05, January 2011.

Elsby, Michael, Bart Hobijn, and Aysegul Sahin, "The Labor Market in the Great Recession," Brookings Papers on Economic Activity, Spring 2010, vol. 41, no. 1, pp. 1-69.

Hornstein, Andreas, and Thomas A. Lubik, "The Rise in Long Term Unemployment: Potential Causes and Implications," Federal Reserve Bank of Richmond 2010 Annual Report.

Kocherlakota, Narayana, "Inside the FOMC," Speech in Marquette, Michigan, August 17, 2010.

Shimer, Robert, "Reassessing the Ins and Outs of Unemployment," Updated NBER working paper, October 2007.