The San Francisco Federal Reserve just released a report that suggests the natural rate of unemployment in the U.S. (also sometimes called NAIRU) is going up and may actually be 6.7%. That means, relying on last month’s 9% unemployment rate, we’re only 2.3% away from the natural rate.
Their analysis looks at how many jobs are available in the U.S. economy, and how employable the U.S. work force is. Their conclusion is that the U.S. now likely has a higher natural unemployment rate due to a higher level of structural unemployment brought on by a lack of skills and mobility in the labour force.
From The San Francisco Fed (emphasis ours):
The construction, finance, and real estate sectors have shrunk after the bursting of the housing bubble and the subsequent financial crisis. The skills of workers who used to be employed in those sectors may not be easily transferable to growing sectors such as education and health care (see Rissman 2009 and Barnichon et al. 2010). Similarly, the housing bust has left millions of homeowners underwater on their mortgages, which locks them into their homes and may make it more difficult for them to move to higher growth areas. These sectoral and geographic mismatches between workers and job openings may be making it harder for employers to fill vacancies.
This isn’t the first time we’ve heard this. Many analysts have been talking about “structural” problems in the U.S. economy. Earlier this month, Societe Generale said that NAIRU in the U.S. may actually be as high as 7.5%.
But the Fed admitting to it means that, as we get closer to 6.7%, board governors will likely become more and more concerned about the inflation threat as that headline unemployment number goes down. Paul Krugman argues they shouldn’t since Fed economists also suggest the new structural gap is 50% the result unemployment benefits being extended.
The estimates of the natural rate below, with some going as high as 7.0% or above.
Photo: Federal Reserve