DP15646 The Inexorable Recoveries of US Unemployment

Author(s): Robert E. Hall, Marianna Kudlyak
Publication Date: January 2021
Keyword(s): Business cycle, NAIRU, Natural unemployment rate, Recession, recovery, unemployment
JEL(s): E32, J63, J64
Programme Areas: Monetary Economics and Fluctuations
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=15646

Unemployment recoveries in the US have been inexorable. It is a remarkable fact that, prior to 2020, after unemployment reached its peak in a recession, and a recovery began, the annual reduction in the unemployment rate was stable at around 0.1 log points per year. The economy seems to have an irresistible force toward restoring full employment. Unless another crisis intervenes, unemployment continues to glide down to its minimum level of approximately 3.5 percentage points. The observed behavior of unemployment casts doubt on the common assumption that there is a constant natural rate of unemployment around which unemployment oscillates. Instead, the natural rate of unemployment during recoveries tracks actual unemployment on its downward path.