The Unassuming Economist

In my presentation at UNICEF today I spoke about the impacts of fiscal consolidation (often called “austerity” in the blogosphere) on long-term unemployment, labor’s share of income, and inequality. 

Here’s a link to the paper.

The announcement

The view from the UNICEF conference room

Each release of the U.S. payroll employment report leads to a debate on the extent to which unemployment is cyclical vs. structural. I’ve just updated the estimates of U.S. structural unemployment reported in my 2011 IMF Working Paper. (Please note that IMF working papers represent the views of the authors and not the official view of the IMF or of any institution with which my co-authors are affiliated.)

The bottom line? The estimate of structural unemployment has declined over the past year in line with the decline in the actual unemployment rate. In the figure below, the solid (black) line shows the U.S. unemployment rate declining from nearly 10 percent in 2009:Q4 to about 7 ½ percent today. The dotted (red) line is the estimate of structural unemployment; it too has declined over that time and the latest estimate of structural unemployment is 6.2 percent. There is a lot of concern about U.S. long-term unemployment. In this case too, there has been a decline in the estimate of the structural component of long-term unemployment, but it is more gradual than in the case of total unemployment.

Intrigued? This post by Menzie Chinn (Econbrowser) has a nice ‘cheat sheet’ on how these estimates were constructed.

Paul Krugman has blogged extensively on how states within the US currency union have adjusted better than regions and countries within the European currency unions. My presentation at the European Regional Science Association today gives some background on this discussion and some new results.

There is further evidence that employment growth is low because output growth is poor. According to a new IMF working paper, “Much of [the cross-country differences in employment growth] are the result of the differences in real GDP growth. A scatter chart of real GDP growth and employment growth between 2008 and 2011 shows a strong correlation between the two (Figure 1). Latvia, which had the largest decline in real GDP between 2008 and 2011, also experienced one of the largest reductions in employment. And Poland, which had the largest increase in real GDP during this time period, also had one of the best employment outcomes.”  

Ball, Leigh, and Loungani also provide evidence on how well Okun’s Law has held up during the Great Recession.