Download pdf - Reasons For Skepticism About Structural Unemployment

8/8/2019 Reasons For Skepticism About Structural Unemployment

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Economic Policy institutE 1333 H strEEt, nW suitE 300, East toWEr WasHington, Dc 20005 202.775.8810 WWW.EPi.org

E P I B R I E F I N G PA P E RE c o N o m I c P o l I c y I N s t I t u t E s E P t E m B E R 2 2 , 2 0 1 0 B R I E F I N G P A P E R # 2 7 9

Unemployment has remained at 9.5%1 or above or more than a year, and may remain that high or inch even

higher through the end o 2011. Te predominant, and in our view correct, narrative to describe this situation

has been that the bursting o the housing bubble and the resulting loss o wealth led to sharp cutbacks in

consumer spending. Te loss o consumers, along with nancial market chaos brought on by the bubbles burst, also led

to a collapse in business investment. As consumer spending and business investment dried up, severe job loss ollowed.

Further, even ater economic output stopped contracting (in roughly the middle o 2009), its subsequent growth has not

been nearly rapid enough to create the jobs needed to even keep pace with normal population growth, let alone to put

the backlog o workers who lost their jobs during the collapse back to work.

Our view that this is the correct explanation or the jobs crisis is rooted in datathe observed collapse o overall

output, reductions in consumption, and extensive excess capacity. Te policy conclusion drawn rom this narrative is

that we need aster growth to increase the demand or workers and reduce unemployment.

Yet, there has been increased attention to a competing narrative, the possibility that a large share o current high

unemployment is structural, meaning that the problem is that those who are unemployed are not well-suited to the

jobs becoming available.2 Tis would be, or instance, because their skills are inadequate, have deteriorated, or are not

applicable to the industries that are expanding, or that

the unemployed simply do not live in the places where the

jobs are. Some make claims about structural unemploymentbecause certain aggregate relationships, such as between

job openings and unemployment, do not appear to be

ollowing historical patterns, suggesting a possible skill

mismatch. Others have postulated that employers have

substantially revamped their production processes in this

downturn, thereby eliminating the need or many o the

types o workers who are currently unemployed. Still others

T a b l e o C o n T e n T s

skpticim pprprit ....................................................................3

lkig r vidc .........................................................................5

Ccui ............................................................................................10

www.ep.

Reasons foR skepticismabout stRuctuRal

unemploymentexmiig th Dmd-sid evidc

B y l a W r E n c E m i s H E l , H E i D i s H i E r H o l z , a n D K a t H r y n E D W a r D s


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E P i B r i E f i n g P a P E r # 2 7 9 s E P t E m B E r 2 2 , 2 0 1 0 PagE 2

note that the housing bubble lead to a bloated construc-

tion sector and many o those jobs will never come back,

leaving many workers needing to switch to new jobs or

which they may not be qualied.

O course, it matters whether the claim is that structural

unemployment is a large or small share o unemploy-ment at this stage o the business cycle. Unless our current

unemployment problem is primarily structural, policies

to alleviate cyclical unemployment are still appropriate.

Tus, this paper addresses and questions the claim that

structural unemployment is the predominant reason that

unemployment is high. Tere has been little evidence

oered to support the claim o extensive structural un-

employment, and we nd that the pattern o employer

behavior regarding job openings, layos, and hires does

not support such a claim. his matters quite a bit or

guiding policy. Te policy implications o a nding that

our high unemployment is primarily structural are that:

(1) it would be oolhardy to use urther demand manage-

ment (scal stimulus, either tax cuts or increased spending,

or monetary policy) to lower unemployment; and, (2) the

appropriate policy is to oer education and training to

the unemployed to help them make a transition to new

occupations and sectors.

Lest we be accused o critiquing a straw man, note the

recent statement o the Minneapolis Federal Reserve Bank

president, Narayana Kocherlakota:

What does this change in the relationship between

job openings and unemployment connote? In a

word, mismatch. Firms have jobs, but cant nd

appropriate workers. Te workers want to work,

but cant nd appropriate jobs. Tere are many

possible sources o mismatchgeography, skills,

demographyand they are probably all at work.

Whatever the source, though, it is hard to see

how the Fed can do much to cure this problem.Monetary stimulus has provided conditions

so that manuacturing plants want to hire new

workers. But the Fed does not have a means to

transorm construction workers into manuac-

turing workers.

O course, the key question is: How much

o the current unemployment rate is really due

to mismatch, as opposed to conditions that the

Fed can readily ameliorate? Te answer seems to

be a lot.Most o the existing unemployment

represents mismatch that is not readily amenableto monetary policy. (Kocherlakota 2010)

Te competing explanation, as mentioned above, is the

one we nd most plausible: the economy is operating

ar below its potential output because o a shortall

in demand caused by an extreme loss o inancial and

housing wealth that caused a cut back in consump-

tion. hus, there are simply not enough jobs to go

around. Evidence or this explanation ocuses on such

indicators as low operating capacity in manuacturing,

which was 71.6% in June 2010, down rom 79.1%

in December 2007.3 Vacancies in commercial oices

(now at 17.4%) (Canalog 2010) are a urther indica-

tion o excess capacity. he bottom line is that total

demand in the second quarter o 2010 is still below its

pre-recession level.4 In act, total output, as measured

by gross domestic product, was still 1.3% below its

pre-recession level.5 O course, one would expect

demand and output to have grown substantially over

the two-and-a-hal years since the recession began.

he Congressional Budget Oice conservatively puts

the output gapthe dierence between potential

and actual outputat 6.4% in the second quarter.6

Te deceleration o ination is another sign o weak

demand, with core ination (excluding uel and ood)

decelerating rom 2.3% to 1.8% to 1.0% over the last

three years.7 Lower ination or deation is a strong in-

dicator that total demand has declined, leaving rms

with excess capacity. Similarly, very low interest rates

accompanying large ederal decits are another sign o

slack in demand, as this would not be the case i rmsand households were borrowing at their usual scale.

In our view, the pervasiveness o: (1) lost employment

and output across sectors; and (2) high unemployment

across types o workers by state, education, age, and

occupation suggests an aggregate or macroeconomic


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explanation rather than one rooted in a ew sectors or

locations or because o the lacking skills o some workers.

s rrTe claim that current unemployment is primarily struc-

tural should require much more evidence than seems tobe oered because common sense would deny such an

explanation. Ater all, a structural unemployment story

presumes that millions o workers are now inadequately

prepared or available jobs even though they were ruit-

ully employed just a ew months or years ago.

Productivity, technology investment: Did the

economy transorm itsel rom the end o 2007 to the

beginning o 2010? What would lead us to believe

that, and what ootprints would such a transormation

leave? One would imagine that such a transormation

would be associated with sizeable productivity gains

and signicant investments. Productivity did grow a

pretty spectacular 6.3% rom early 2009 to early 2010.8

However, thats the ull extent o productivity growth

since the start o the recession, a total o 6.3% growth

over a two-and-a-hal year period. In the last quarter,

the second quarter o 2010 that has received so much

attention or the ailure o unemployment to all, pro-

ductivity was actually negative, a decline o 1.8%. Net

investment in business equipment and sotware in 2009

(the latest data) was actually negative, the rst time this

occurred since World War II. In other words, the alleged

structural transormation o production processes was

notassociated with new equipment or new technological

processes (requiring sotware). It is reasonable to doubt

whether it happened at all.

Location: Is it just a need or greater mobility, or

the unemployed to move to where jobs are more plentiul?

Well, where would they go? Te disparity between states

unemployment rates is indeed striking, ranging rom

14.3% in Nevada to 3.6% in North Dakota.9 In act,there are 11 states where the unemployment rate in June

was less than 7.0%. Still, it is not as simple as a geo-

graphical mismatch, with high perorming and low per-

orming states. Tese 11 states with low unemployment

have a total adult population o about 17 million, or

about 7.0 % o the U.S. total.10 I the unemployed (14.6

million in June) moved to those states they would nearly

double the labor orce there. A similar calculation can be

made or states whose unemployment has risen by 3.0

percentage points or less. Te ailure to relocate can-

not explain high unemployment unless the receiving

states could readily absorb the unemployed. Tat is

simply not the case.Construction: A minor oray into labor market data

suggests that construction does not play the outsized

role imagined by the president o the Minnesota Federal

Reserve Bank and many other commentators. Tough

a construction story is perhaps intuitive given the role

o the housing bubble, it is noteworthy that those who

see a large role or construction have not examined the

associated labor market data. It is true that construc-

tion has lost many jobs in this downturn, losing nearly 2

million jobs rom the start o the recession through the

second quarter o 2010. Tis accounts or about 25%

o all private-sector jobs lost.11 Is this whats ueling the

unemployment problem? Te answer is No, not at all.

As shown in Figure A, in the second quarter o 2010 un-

employed construction workers comprised 12.4% o the

unemployed and 12.5% o the long-term unemployed:

this means that unemployed construction workers are

not more likely to be long-term unemployed than those

displaced rom other sectors. Even beore the reces-

sion, in 2007, unemployed construction workers were

10.6% o all unemployed and 11.0% o the long-term

unemployed.12 Te notion that unemployed construc-

tion workers are ueling unemployment is not true. Just

because there was an extreme loss o jobs in construction

does not imply that those workers are driving up unem-

ployment: many ound jobs in other sectors and some

have let the country.

Beveridge Curve: Te Beveridge Curve describes

the historical relationship between unemployment and

job openings, and allows one to predict how high or low

the unemployment rate should be given a certain numbero job openings. Tere has been much attention to the

mid-July blog post by David Altig (Altig 2010a), senior

vice president and research director at the Atlanta

Federal Reserve Bank who used such an analysis to

suggest that almost a third o the unemployed, 4.6 million

workers, are structurally unemployed. Less noticed is that

Altig backed o this claim just a month later.


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f i g u R e a

shr th tt umpyd d g-trm umpyd wh r ctructi wrkr,

2007q2 - 2010q2

NotE: Data are not seasonally adjusted; data shown are not time series but second quarter of each year only.

souRcE: EPI analysis of Bureau of Labor Statistics data.

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

2007q2 2008q2 2009q2 2010q2

Ctructi hr umpyd

Ctructi hr g-trm umpyd

In mid-July Altig wrote in Macroblog, the Atlanta

Federal Banks blog,

Since the second quarter o last year, the un-

employment rate has ar exceeded the level that

would be predicted by the average correlation

between unemployment and job vacancies over

the past decade.

Te dashed line in the chart above, which isestimated rom the data rom 200008, represents

the predicted relationship between the number

o unemployed persons in the United States and

the number o job openings. Tat simple rela-

tionship would suggest that, given the average

number o job openings in April and May, the

unemployed would be expected to number about

10.4 millionnot the nearly 15 million we

actually saw. (Altig 2010a)

Tis claim was based solely on a simple analysis o job

openings and unemployment since 2000, encompassing

the experiences o just two recessions (the Job Openings and

Labor urnover Survey data used in the analysis only

became available in late 2000). Altig conscientiously

backed o (Altig 2010b) in mid-August rom his mid-July claim ater a more in-depth analysis o job openings

and unemployment was presented by Cleveland Federal

Reserve economists Murat asci and John Lindner (asci

and Linder 2010). Using more data to obtain a longer

time rame (going back to 1951) asci and Lindner ound

that unemployment being higher than what the Beveridge

Curve would suggest is not an anomalous relationship


5/12


between job openings and unemployment, but typical o

deep recessions and what happened in the initial recoveries

ollowing the deep recessions in the 1970s and 1980s.

Altig cites asci and Lindners ndings that:

Hence, cyclical changes may not necessarilypresent themselves asa neat movement along

the curve. During and ater recessions in the

postwar period, the Beveridge Curve has gener-

ally ollowed a pattern o shiting to the right

during a recovery. One potential reason or this

could be that even though some unemployed

workers start lling the available job openings,

workers who had let the labor orce might get

encouraged by the recovery and start looking or

a job, thereby keeping the unemployment high.

While the Census may have skewed the data or

this recovery, the path o the curve going orward

looks poised to ollow in the ootsteps o previous

recessionary periods. (asci and Linder 2010)

Altig then backs o o his earlier claim, ending his post by

approvingly listing asci and Lindners conclusion that,

Firm conclusions will only be able to be drawn as more

data are generated (asci and Linder 2010).

l r vOne o the curious aspects o this developing structural

unemployment storyline is how hard it is to nd any

research trying to tie this story to actual detailed trends

in employment, unemployment, or output data. We

explore patterns o employer job openings, layos, and

hiring in this paper to see i they correspond to a structural

unemployment story. his paper, then, presents an

examination o the demand side or the employer side

o the market. We will oer other data ocused on the

characteristics o the unemployed, the supply side, inanother paper. At this point, however, we would point to

a ew trends. We nd:

Claims that todays unemployment is predominantly

structural should be treated skeptically since that

implies that people gainully employed a year or two

ago are now inappropriate or available jobs;

Te notion that work processes have dramatically

changed over the recession, leaving millions o workers

unqualied or work, is hard to square with the low

levels o investment in equipment and sotware and

the meager productivity growth, just 6.3% in two-

and-a-hal years.Tough construction employment has allen substan-

tially, this has not ueled either unemployment or

long-term unemployment as constructions share o

both unemployment and long-term unemployment

remains very near its pre-recession level.

Claims that we are experiencing an anomalous rise in

unemployment relative to job openings are not true:

the same thing happened in the deep recessions o the

1970s and 1980s.

Lack o geographic mobility cant explain unemploy-

ment since the 11 states with less than 7.0% unem-

ployment would have to double their labor orces to

absorb the unemployed.

Tere have been between ve and six unemployed or

every job opening (the job seeker ratio) since mid-2009,

suggesting a shortage o jobs. Te job seeker ratio is

roughly double what it was in the last recession and

reects, in large part, that job openings are one-ourth

lower now than they were in the last recovery.

In the rst 12 months o this recovery there were 32.0

million job openings, 10.0 million ewer than the rst

12 months o the prior recovery, one known or being

a jobless recovery.

Te shortall o job openings in this recovery compared

to the last one is pervasive: it is evident in nearly every

sector including labor intensive service industries such as

hospitality, entertainment, and accommodation. Con-

struction is responsible or just 6% o the overall shortallin openings in this recovery compared to the last one.

Layos during the early stages o this recovery are

comparable to those in the prior recovery, and cannot

explain high unemployment.

Hiring exceeds openings in the private sector more so

now than earlier in this recession and more so than in


6/12


f i g u R e b

Th j kr rtiThe number o unemployed workers per job opening

numbero

uempoyedworkersperjobope

ig

NotE: Shaded areas denote recession.


the early 2000s recession. Tis evidence runs contrary

to notions that employers are having more difculty

now lling jobs.

Te ollowing analysis examines data rom job openings,

layos, and hires to determine whether the pattern o

evidence its the claim that current unemployment is

predominantly structural.

Job openings

Te job seekers ratio, which is the number o unemploy-ment workers per job opening, provides ample evidence

o a demand-side problem.13 Simply put, the number o

job openings has been ar too ew to accommodate those

looking or work. As Figure B shows, the ratio exceeded

six in the summer o 2009 but has dropped to the low ve

range more recently (once the Census jobs were lled).

Even i the unemployed lled every job opening there

would still remain many unemployed workers, an indica-

tion o too ew job openings: in other words, even i every

single job opening in the United States was lled, 80%

o the unemployed would still be unemployed because

there are no jobs for them. Te ratio o unemployed to job

openings in recent months has been nearly double that

attained at the worst points o the early 2000s recession,

a ratio o 2.8. Tis reects, at least in part, that total job

openings in the last hal o 2009 were 25% below those in

mid-2003, when the job seekers ratio was peaking in the

last recession.We can examine this urther by comparing the cumu-

lative number o job openings in the last recovery to this

one, looking at the rst 12 months o each recovery. We

assume June 2009 is the start o the recent recovery,

meaning the start o the growth o the economy ater it

shrank in the downturn. Te earlier recovery began in

November 2001 (the Job Openings and Labor urnover

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nv. 2001: 2.5

Dc. 2007: 1.8

nv. 2009: 6.2


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Survey is relatively new, dating back to only December

2000, and thereore does not provide data on earlier

recoveries). Figure C shows that the cumulative job

openings in this recoverys rst year were about 32.0

million, roughly 10.0 million ewer than the cumula-

tive openings in the early 2000s recovery. Keep in mind,

however, that the recovery o the early 2000s is a low

bar: it is known as a jobless recovery, as the economy

shed an additional 600,000 jobs afterthe recession had

ended. Indeed, job growth did not ully establish itseluntil September 2003, 22 months into recovery. Yet the

current recovery has generated ar ewer job openings,

and there are ewer opportunities or job seekers now

than in the jobless recovery o the early 2000s. We would

conclude that we have had a signicant shortall in new

job openings recently, even when measured against the

pitiully weak recovery o the early 2000s.

By sectors: A shortall in job openings is clear, yet a

structural shit would still be evident i this shortall was

concentrated in a ew specic industries. Is that short-

all in new jobs concentrated in a ew industries, like the

much-discussed construction industry whose growth

was ueled by a housing bubble in the earlier recovery?

Figure D shows the ratio in each sector o the cumula-

tive job openings in the current recovery to those in the

early 2000s recovery. Tis measure shows how ar short

this recoverys job openings are to those o the earlierrecovery or each sector. It is clear that the shortall

in job openings is pervasive, occurring in every sector

except mining. Across all sectors, openings averaged 72%

o those in the earlier recovery. Sure, recent construction

job openings were just 58% o those in the earlier recovery.

And, there has been an acute shortall in manuacturing

job openings recently. However, the shortall in job openings

f i g u R e c

Cumutiv privt-ctr j pigFirst 12 months o 2001 and 2009 recoveries

Jopopeigs(miios)

Mth it rcvry

* 2001: Nov. 2001, 2009: June 2009.


octr 2002: 42.8 mii

My 2010:

32.0 mii

0

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10

15

20

25

30

35

40

45

1 2 3 4 5 6 7 8 9 10 11 12

2001 rcvry

2009 rcvry

*


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f i g u R e d

shrt i j pigThe ratio o cumulative jobs openings rom the rst 12 months o the 2009 recovery (June 2009 - May 2010)

to the cumulative job openings rom the 2001 recovery (Nov. 2001 - Oct. 2002), by industry


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was also very severe in labor intensive service industries

such as hospitality, entertainment, and accommodation.

It is time to stop thinking about unemployment and

the ailure to generate job openings as being driven by

developments in particular sectors since the trends are

pervasive across essentially all sectors.

Table 1 shows the job opening data or each sector

in both the 2001 and 2007 recoveries to urther asses thescale o the recent openings shortall by sector. Construc-

tion is responsible or 5.7% o the recent shortall in

openings but that is comparable to that sectors 5.5% share

o employment, meaning construction has not played any

outsized role in the ailure or openings to rise as ast now

as in the earlier recovery. Te shortall has predominately

been driven by private-sector service industries (proes-

sional and business services, health, education, entertain-

ment, hospitality, and accommodations), which generated

71% o the openings shortall, though had only 46% o

total employment. In act, the worst perorming industry

under this measure was leisure and hospitality, which

accounts or 10% o employment but 18% o the job

openings shortall.

LayofsMaybe the issue is that we have been seeing more structural

changes within industries or shits across industries that

are leading to more layos, thereby impeding a growth in

overall employment. Tat is, maybe the weak net gains in

employment in this recovery are due to a higher rate o

layos or worker displacements. A look at the cumulative


9/12


t a b l e 1


layos in this recovery compared to the last recovery, as

in Figure E, shows that layos are not a piece that lls

in any puzzle: the cumulative layos in each recovery are

very similar.

Filling job openingsLast, we examine whether it is harder to ll job openings,

an indication that structural challenges such as having

workers with the right skills or in the right locations are

evident. Te data or the private sector, however, show it

is easier to hire people now than in the last recovery, at

least as reected in the ratio o hires per job opening (see

Figure F).14 Te ratio o hires per job opening provides

a sense o how difcult it is to translate openingsa

vacancyinto an actual hire. Presumably i it is difcult

to hire adequately skilled workers, then it should take

longer to ll vacancies and the ratio o hires to openings

should all. In act, the opposite has occurred: the ratio

has been somewhat higher in this recovery (averaging

1.7 hires per job opening) relative to the earlier recovery

(averaging 1.5 hires per job opening). Tis suggests that

it has become a bit easier to ll openings in this recession

than the last recession.

Moreover, this ratio has increased since the reces-

sion started. Not only is it easier to hire now than it was

nine year ago, but it is easier even since the start o the

Cumutiv j pig i mjr ctr, rt 12 mth rcvry,

2001 cmprd t 2009 rcvry

Cumutiv j pig (000)shr

difrc

shr

mpymt,

2007Idutry

2001 recovery

( Nov .2001-Oct. 2002)

2009 recovery

(June 2009-May 2009) Diference

ta nnfar 42,754 32,219 -10,535 100.0% 100.0%

Gvernen 1,163 1,606 443 -4.2 16.1

ta privae 37,546 27,452 -10,094 95.8 83.9

mining and gging 106 131 25 -0.2 0.5

cnrin 1,428 824 -604 5.7 5.5

manfaring 2,941 1,851 -1,090 10.3 10.1

trade, ranprain, and iiie 6,651 4,953 -1,698 16.1 19.4

Reai 4,212 3,164 -1,048 9.9 11.3

Infrain 1,077 849 -228 2.2 2.2

Finania aiviie 2,848 2,148 -700 6.6 6.0

Prfeina and bine ervie 6,964 5,328 -1,636 15.5 13.0

Edain and heah ervie 8,610 6,525 -2,085 19.8 13.3

leire and hpiai 5,064 3,198 -1,866 17.7 9.8

Ar, enerainen, and rereain 679 273 -406 3.9 1.4

Adain and fd ervie 4,388 2,927 -1,461 13.9 8.3


10/12


f i g u R e e

Cumutiv privt-ctr yfFirst 12 months o 2001 and 2009 recoveries

layofs(miios)

Mth it rcvry


recession. Tere is no indication o a growing structural

problem. Remember, too, how these data are timed.

Job openings is the count o available jobs on the last

day o the month. Hires, on the other hand, is the

sum o all hires completed throughout the month. As

long as the number o hires is larger than the number

o openings, it means that it is taking less than a month

to ll those jobs.

cWe increasingly hear or read claims that we have a serious

structural unemployment problem, even to the extent o

claiming that most o the unemployed beyond a normal

(ull-employment) rate ace structural problems in

nding work. Tis implies that unemployment difculties

reside in the workers who are unemployed: they either

are located in the wrong place or do not have the required

skills or the currently available jobs. I this is so, then

macroeconomic tools such as iscal policy (spending

or tax cuts) or monetary policy can not address our

unemployment or long-term unemployment situation.

Surprisingly, perhaps amazingly, there is no systematic

empirical evidence or such assertions. Te most prominentventure in this arena, Altigs mid-July posting on the

Atlanta Federal Reserves blog, was an application o a

ruler to 10 years o data, a nding that was reversed just

a month later when more rigorous work came orward.

Some, such as the president o the Minneapolis Federal

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f i g u R e f

Hir-t-pig rti i privt ctr d th umpymt rt


Ratio

ohirestojobopeigs

Uempoymetrate

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Jul.-08

oct.-

08

Jn.-

09

apr.-09

Jul.-09

oct.-

09

Jn.-

10

apr.-10

Reserve simply assume that our problems are centered in

a particular sectorconstruction. A brie oray into un-

employment data shows this not to be the case: construc-

tion does not disproportionately contribute to our unem-

ployment or long-term unemployment problem. Beore

policy makers adopt this rameworkthat much o our

unemployment is structuralthey should require much

more evidence than is currently available. Tis is especially

the case because common sense would suggest that the

problem the unemployed ace is a scarcity of job openings, a

eature o the labor market acing every group o workers

regardless o education, sector, occupation, and location.


12/12


eTe unemployment rate and level used throughout is otal1.Population, age 16 and older, Seasonally Adjusted, rom CurrentPopulation Survey, Bureau o Labor Statistics.

Tis can and should be distinguished rom claims that we will2.eventually see structural unemployment in the uture because

the long-term unemployed will see skill erosion or that a long-term trend toward the need or more skills will eventually bite.We are skeptical o these concerns as well but leave that oranother time.

able 7. Capacity Utilization in Manuacturing. Series G.173.Industrial Production and Capacity Utilization. Federal ReserveStatistics and Historical Data.

Final Sales to Domestic Purchasers. National Income Product4.Accounts. 1.4.6. Relation o Real Gross Domestic Product, RealGross Domestic Purchases, and Real Final Sales to DomesticPurchasers, Chained Dollars. Bureau o Economic Analysis.

Gross Domestic Product. National Income Product Accounts.5.able 1.1.6. Real Gross Domestic Product, Chained Dollars.Bureau o Economic Analysis.

Congressional Budget Ofce. able 2.2 Key Assumptions in6.CBOs Projections o Potential Output. he Budget andEconomic Outlook 2010-2020. August, 2010.

Core Consumer Price Index or All Urban Consumers, Research7.Series (CPI-U-RS). Bureau o Labor Statistics. Rates given showannual ination rates or the years ending the second quarters o2008, 2009, and 2010.

Output per hour o Nonarm Business sector rom Productivity8.and Costs, Bureau o Labor Statistics. Number shown describesgrowth rom rst quarter 2009 to rst quarter 2010, rst quarter2010 to second quarter 2010, and ourth quarter 2007 to secondquarter 2010. http://www.bls.gov/news.release/pd/prod2.pd.

Seasonally Adjusted Statewide Unemployment Rates. Local Area9.

Unemployment Statistics, Bureau o Labor Statistics.

Tese 11 states are Oklahoma, Iowa, Minnesota, Wyoming,10.Kansas, Hawaii, Vermont, New Hampshire, Nebraska, NorthDakota, and South Dakota. Population includes the civilian non-institutional population age 16 and older rom the Local AreaUnemployment Statistics, Bureau o Labor Statistics.

All employment and job numbers throughout are Seasonally11. Adjusted, Payroll Employment. Current Establishment Survey,Bureau o Labor Statistics.

Data are not seasonally adjusted, but the average o the three12.monthly rates in each quarter, rom Current Population Surveymicrodata.

All job opening, layos, and hiring data used throughout are13.

Seasonally Adjusted, otal US rom the Job Openings and Laborurnover Survey, Bureau o Labor Statistics.

We use the hires o one month divided by the openings in the14.prior month. Te data are or private-sector openings and hires toavoid any impact o temporary Census hiring.

Rr Altig, David. 2010a. A curious unemployment picture getsmore curious.Macroblog, Te Federal Reserve Bank o Atlanta.

July 16, 2010. Accessed at: http://macroblog.typepad.com/macroblog/2010/07/a-curious-unemployment-picture-gets-more-curious.html

Altig, David. 2010b. Just how curious is that Beveridge Curve?Macroblog, Te Federal Reserve Bank o Atlanta. August 18, 2010.Accessed at: http://macroblog.typepad.com/macroblog/2010/08/just-how-curious-is-that-beveridge-curve.html

Canalog, Victor. 2010. Reis Quarterly Brieng. Reis Reports.Speech given on August 11, 2010. Accessed at: http://www.reis-reports.com/blog/category/reis-quarterly-brieng/

Kocherlakota, Narayana. 2010. Inside the FOMC. Speechgiven at Marquette, Michigan, August 17, 2010. Accessed at:http://www.minneapolised.org/news_events/pres/speech_

display.cm?id=4525

asci, Murat, and John Linder. 2010. Has the Beveridge Curveshited? Economic Trends, Federal Reserve Bank o Cleveland.

August 10, 2010. Accessed at: http://www.clevelanded.org/research/trends/2010/0810/02labmar.cm