The unemployment rate has greatly increased
since the onset of the latest recession in December 2007, when it measured
5.0%. The rate peaked at 10.1% in October 2009, four months after the recession’s
official end in June 2009. Almost three years into recovery, the unemployment
rate remains high at about 8.0%. As a result, policymakers continue to be
concerned about how to spur economic growth and create jobs.
Over the past few years, Congress has used fiscal policy and the Federal
Reserve Board (Fed) has used monetary policy to put the economy on a path
toward the level of demand for goods and services that preceded the
2007-2009 recession. Firms typically react to recessions by laying off workers,
and the deeper the downturn in the business cycle, the greater the rise in
unemployment that results. Expansionary fiscal and monetary policies
commonly have been relied on to remedy what is known as cyclical
The unemployment rate has not been as responsive as had been hoped to the
countercyclical measures undertaken by Congress and the Fed in the past
few years. Consequently, some have suggested that an increase in another
type of unemployment—referred to as structural unemployment—has accounted
for much of the rise in the unemployment rate since 2007.
Structural unemployment develops for different reasons than cyclical
unemployment. Structural unemployment results when jobseekers do not move
quickly into vacant jobs. Obstacles that lengthen the spell of
unemployment (i.e., prolong the period of job search) include mismatches between
the skills or locations of jobless workers and the skills or locations of
available jobs. Another impediment is the composition of the unemployed,
such as more workers whose connection to their former employers is
permanently severed (i.e., fewer workers likely to be recalled from
layoffs once business revives at their former employers). A third factor that
may contribute to long-term unemployment is known as labor market
institutions, such as unemployment benefit programs.
The measures enacted by Congress have chiefly focused on alleviating cyclical
rather than structural unemployment. To the extent that skill mismatch or
the Emergency Unemployment Compensation (EUC) program has contributed to
the still-high unemployment rate, Members may consider promoting the
education and training of workers who lost jobs in such hard-hit industries
as home building and allowing the EUC program to lapse as scheduled in early
2013. To the extent that the increase in unemployment is the result of the
slow pace of economic growth, policymakers may consider additional
This report assesses the relative magnitudes of cyclical and structural unemployment
as they are thought to respond to different policy measures. An analysis
of changes since 2007 in a variety of labor market indicators across
industries and areas finds patterns that strongly suggest most of the increase
in the U.S. unemployment rate is cyclical (i.e., due to depressed aggregate
demand). Empirical studies suggest that, although structural unemployment
has increased, it accounts for a minority of the rise in the unemployment
rate in recent years: perhaps between 20% and 35%, or 1.0-1.75 percentage
points out of 5 percentage points.
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