Amerisclerosis? The Puzzle of Rising U.S. Unemployment

Persistence

Written By: Olivier Coibion, Yuriy Gorodnichenko, Dmitri Koustas

Presented By: Drew Geissbuhler, Charles Meixelsperger, Jeffrey Zorr

Key Points

● Similarities between Great Recession and Europe in the 1980s

● Differences in recent recessions ● Economic shocks/policy factors

Background Information

● Early 1980s US and Western Europe both experience recessions

● Western Europe had a prolonged recession compared to the U.S

● 1990, 2001, and 2007 recessions all experienced persistent unemployment

The Great Recession and the 1980s Recessions

Similarities Between 1980 Western Europe Recession and U.S. now

● People were unwilling to move for jobs

● Cultural Morals were low in 1980 Europe.

● Average age of unemployed getting older

Differences in recent Recessions

● Long term unemployment has risen greatly.

● Slow rate of Convergence.● Disability claims have gone up.

Scaled Unemployment Patterns across U.S. Recessions

Economic Shocks

● Account for initial rise in unemployment.● Many shocks in sequence can account for

extended unemployment.● Not the case for recent post 1990

persistence.

Policy Changes

Pre 1990

● Small change in budget balance and government deficit.

● The policies of Pre 1990 Recessions are less Contractionary.

Post 1990

● Both 2001 and 2007 recessions show a large change in deficit.

● If policy makers would have chosen similar actions to pre-1990 Unemployment would have recovered faster.

● More Contractionary.

Conclusion

● U.S. economy has shown a slow recovery.● Post WWII and pre 1990 showed very quick recovery

from the recession.● The authors disprove many factors believed to have

great effect on unemployment persistence.● Implementation of new monetary and fiscal policies that

adjust to new information help hasten unemployment recovery.

Conclusion (continued)

● Great Recession and future U.S. downturns are likely to last longer than those of the past so fiscal policy must adjust accordingly.

● Fiscal policies should target longer-lived projects that focus on the long run rather than short run investments like more recent policies.