Summary
Four years after the onset of the Great Recession, labor market outcomes in the U.S. remain depressed. The fraction of 16- to 64-year-old individuals who are employed fell from above 72 percent in 2007 to less than 67 percent in 2009 and remains stuck there. The unemployment rate rose from 4.5 percent to 10 percent and still hovers above 8 percent. And the fraction of unemployed workers who have been looking for a job for over six months has increased to a share not seen in the United States in at least 60 years. The Atlanta Fed's Center for Human Capital Studies hosted a conference last weekend, organized by Richard Rogerson (Princeton University), Robert Shimer (University of Chicago), and the Atlanta Fed's Melinda Pitts that explored why the employment losses were so large and why the labor market recovery has been so weak. Examining these questions is important because different hypotheses about the nature of the recession suggest that different policy interventions may help to accelerate the recovery.
The discussions at the conference questioned the usefulness of labels like deficient demand, structural unemployment, and cyclical unemployment. These terms mean different things in different contexts and do not clarify the key causal factors. Explanations such as "employment is slow because uncertainty is high" could easily fit under any of these banners. Instead, isolating the key changes that have taken place in the U.S. economy, and then scrutinizing the factors that have influenced how those changes have affected the labor market, would be more conducive to arriving at answers.