Thursday, December 29, 2011

The Enigma of Long-Term Unemployment

The Enigma of long-term unemployment a possible explanation. The story's conclusion is below and the title and the authors; Richard Peach, Josiah Bethards, and Joseph Song.

Labor Force Exits Are Complicating Unemployment Rate Forecasts

The labor force participation rate has fallen sharply since the previous business cycle peak in fourth-quarter 2007. The decline has been more pronounced than one would have predicted based on the trends of the past decade, such that the participation rate is roughly a full percentage point lower than its underlying trend. Forecasts of the U.S. economy for the next several years that are quite similar in most other respects could have quite different paths for the unemployment rate depending on the assumptions made for the labor force participation rate over the forecast horizon. Moreover, a declining unemployment rate does not necessarily imply that the labor market is tightening if it is due to a decline of the labor force participation rate. "

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