Conclusion

A major theme of the posts in our labor market series has been that the outflows from
unemployment, either into employment or out of the labor force, have been the
primary determinant of unemployment rate dynamics in long expansions. The key to
the importance of outflows is that within long expansions there have not been adverse
shocks that lead to a burst of job losses. To illustrate the power of this mechanism, we
presented simulations in a previous post that were based on the movements in the
outflow and inflow rates in the previous three expansions. These simulated paths
show the unemployment rate declining to a level well below current consensus
predictions over the medium term.
In this post, we run these simulations to their natural conclusion to see what
happens to the unemployment rate if the current expansion lasts as long as any of the
three most recent expansions. Recall that in these simulations, we assume that the
inflow and outflow rates change at the same pace as they did in the expansions
following the 1981-82, 1990-91, and 2001 recessions starting at thirty months into
the expansion (roughly the point where we are now in the current expansion) through
the start of the next recession (see the Okuns Law post in this series for the length of
each expansion). The simulated unemployment paths based on the three different
scenarios are shown in the chart below.
The simulations demonstrate the importance of expansion length in reducing
unemployment. Under the flow dynamics of the record-long 1990s expansion, the
simulated unemployment rate falls to 4.7 percent, 5.3 percentage points below the
peak unemployment rate observed in the recession period. For comparison, the actual
unemployment rate fell to 3.9 percent in the 1990s expansion, 3.9 percentage points
below its peak. The simulation using the flow rates in the 1980s expansion gives very
similar dynamics: the simulated decline is 4.9 percentage points, whereas the
unemployment rate actually fell 5.8 percentage points in the 1980s expansion to 5
percent. Consistent with the shorter duration of the 2000s expansion, the simulation
based on the flow rates from that expansion has a minimum unemployment rate of 6
percent and the unemployment rate begins to rise toward the end of the simulation.
This series of labor market posts has examined the possible paths of the
unemployment rate if the current expansion lasts beyond the postwar average of fiftynine months. Of course, readers of this post may consider the assumption that the
current expansion will last at least until mid-2014 as optimistic. However, once one
assumes an ongoing expansion, then it seems likely that the unemployment rate will
continue to fall more quickly than predicted by consensus forecasts based on a
moderate growth outlook. Whether or not this fall in the unemployment rate produces
fast overall growth in the economy depends on the speed at which the employment-topopulation ratio increases and the productivity of the workers added as the labor
market expands. The flow-based approach we have taken to study the labor market
appears superior to the more aggregate approach taken by many forecasters using
Okuns Law. Moreover, even though flow rates have declined in recent years, the U.S.
labor market remains dynamic by international standards. By examining flows as well
as stocks in the labor market, we come to conclusions that differ from the

conventional wisdom about how difficult it might be to reduce so-called structural

unemployment, as we showed in our analysis of unemployed construction workers.

References[edit]
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Unemployment Suggestions
Unemployment can have a devastating effect on morale and self confidence. The stress
of joblessness can impact sleeping schedules, appetite, mood and even your ability to
function effectively. The endless rounds of fruitless applications and interviews can
lead to a sort of jobless despair the belief that you will never work again, or that if
you do it will be in a job far beneath your skill level. The depressing reality of
unemployment is that you dont really know what to do with yourself. If you were
independently wealthy and had no work you would travel or golf or buy a sailboat.
Because you need a job, you have free time but no sense of freedom. This is why
joblessness is so debilitating. So how do you counter the negative effects of
unemployment?
Believe it or not, structuring your time can go a long way towards easing the negative
physical and emotional responses to joblessness. Set your alarm and get up each day,
shower and dress just as you would if you were going to work. By getting to your desk
at a set time each day you will maintain the rhythm of employment and therefore feel
a similar sense of accomplishment. Spend a set amount of time each day in the job
search. Whether you decide that 2 hours or 6 hours is the right amount, stick to that
routine 5 days each week. Always keep in mind that your transition back into the
workforce will be easier if you have maintained the same "work hours" as in an actual
work day.
Once you have completed your pre-set time applying for jobs the rest of the day is
yours to use as you will. Clean the house, complete projects that are long overdue,
work on that novel you always wanted to write, take an online training course or take
an extended workout. Fill the hours that remain in your day until your normal days
end. Then walk away from your work and enjoy the evening with family or friends.
By structuring your day into a normal work pattern you will feel more motivated and
secure. Not only will you sleep better and be more responsive but you will come across
stronger in interviews as well which can speed hiring. Keeping active in a structured
way, and observing normal off time patterns is the key to coming through a period of
unemployment with a minimum of disruption. Taking a training course while you are
unemployed can be a great way of showing prospective employers that you are
motivated and ready to get back in the game.