According to a new paper from the San Francisco Fed (as observed by the NYT’s Catherine Rampell), this is not just talk.
In “Uncertainty and the Slow labour Market Recovery,” researchers Sylvain Leduc and Zheng Liu write that policy uncertainly has held back the U.S. unemployment rate by 1.1 points.
In other words, if it weren’t for Washington dithering, we’d now be at about 6.5%, instead of 7.6% (the paper says 7.8%, which may simply reflect the rate at the time it was being wr7.6/11.8itten).
Here’s how it all works.
This is the Beveridge curve, which plots the unemployment rate against how quickly job openings are being created.
Since the recession, the curve has left its expected course of more openings/less unemployment, and now reflects a sluggish improvement unemployment rate even as job openings recover.
Next, the authors take a look at the “Beveridge curve shifter” rate, or how far off track the curve has gone from its expected course.
They plot that against a policy uncertainty index, a previously developed model that incorporates “the volume of newspaper articles discussing economic policy uncertainty, the number of tax code provisions scheduled to expire, and the extent of disagreements among economic forecasters about such variables as future levels of inflation and government spending.”
Through the reference period, the policy uncertainty index climbed substantially, and almost uniformly with, the curve shifter rate:
Also of note: the recruiting intensity index, which captures the pace of new hires, has fallen off since the recession.
This all leads to the final chart, showing where the Beveridge curve would be without all that uncertainty: about 6.5%.
…beginning in autumn 2009, policy uncertainty became an increasingly important factor behind the shift in the Beveridge curve. By the end of 2012, heightened policy uncertainty accounted for about two-thirds of the shift. Our results suggests that, in late 2012, if there had been no policy uncertainty shocks, the unemployment rate would have been close to 6.5% instead of the reported 7.8%.
The current absolute number of unemployed Americans is 11.8 million. Simple algebra says that at 6.5%, that figure would instead be about 10.1 million — meaning dithering has prevented about 1.7 million people from getting jobs. Assuming less uncertainty encourages higher labour force participation, that absolute number could be even higher.
Thanks a lot, Washington.
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