Great Recession's damage
to U.S. labor market was typical : paper
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[August 22, 2014]
By Jonathan Spicer
JACKSON HOLE Wyo. (Reuters)
- The deep recession of 2007-2009 dealt no more
permanent damage to the U.S. labor market than other
recent downturns, according to a research paper prepared
for a central banking conference that disputed the
notion it left unusually heavy economic scars.
The paper, which will be presented on Saturday to a some of the
world's top central bankers and economists, analyzed what the
authors said was a new set of data on "long-term nonemployment" and
found few things that set the so-called Great Recession apart from
other U.S. recessions since 1981.
The findings could bolster the view of U.S. Federal Reserve Chair
Janet Yellen that the labor market has room to improve before the
central bank needs to raise interest rates from near zero.
Opponents of that view, including some hawkish Fed policymakers,
have argued the recent recession permanently displaced and
disheartened so many workers that the natural level of unemployment
- or the lowest level before wage growth starts to spur overall
inflation - has risen higher.
But the paper's authors, Till von Wachter of the University of
California Los Angeles and Jae Song of the Social Security
Administration, found there was no effective difference from prior
recessions in this respect.
They found a substantial fraction of the labor force lost jobs in
each recession since the early 1980s, resulting in persistent drops
in overall employment.
"Since job loss in the 2008 recession appears to have had similar
medium-term effects on employment, it is unlikely that hysteresis
arising from job loss played a substantially larger role in this
than in other recessions," wrote the authors.
In labor markets, hysteresis represents a permanent change in which
a lower level of overall employment is considered normal.
The paper was one of only a handful prepared for the Kansas City
Federal Reserve Bank's annual central banking conference in Jackson
Hole, Wyoming, at which Yellen and European Central Bank President
Mario Draghi will speak on Friday.
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The U.S. unemployment rate was 6.2 percent in July, down sharply
from 7.3 percent a year earlier. Fed policymakers think it could
fall to between 5.2 percent and 5.5 percent without sparking
The central bank has said it plans to hold rates near zero for a
"considerable time" after a stimulative bond-buying program ends in
October in part because of "significant underutilization of labor
The 79-page paper attempted to determine whether this
underutilization was temporary. To gather the data on long-term
nonemployment, accounting for those having experienced long spells
of joblessness, the authors said they tapped administrative
information on earnings and employment.
(Reporting by Jonathan Spicer; Editing by Paul Simao)
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