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The Increase in Unemployment Since 2007: Is It Cyclical or Structural?

The Increase in Unemployment Since 2007: Is It Cyclical or Structural? Linda Levine, Specialist in Labor Economics. January 24, 2013

  • “The unemployment rate greatly increased after the onset of the latest recession in December 2007, when it measured 5.0%. The rate peaked at 10.0% in October 2009, four months after the recession’s official end in June 2009. More than three years into the recovery, the unemployment rate averaged 8.1% in 2012. Given its still elevated level, policymakers may 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 (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 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 used to remedy what is known as cyclical unemployment. The unemployment rate has not been as responsive as had been hoped to the countercyclical measures undertaken by Congress and the Fed. 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 from pre-recession levels. These observers assert that the rise in unemployment due to change in the structure of the economy represents “a new normal” of elevated unemployment rates for years to come.”
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