Why has the Natural Rate of Unemployment Increased over Time?

Robert H. Topel,

RHT

Robert H. Topel University of Chicago

Chinhui Juhn, and

CJ

Chinhui Juhn University of Houston

Kevin M. Murphy

KMM

Kevin M. Murphy University of Chicago

Discussants: Janet L. Yellen and

Janet L. Yellen United States Secretary of the Treasury - United States Department of the Treasury, Former Distinguished Fellow in Residence - Economic Studies

Martin Neil Baily

Martin Neil Baily Senior Fellow Emeritus - Economic Studies, Center on Regulation and Markets

IN 1970, when Robert Hall asked, “Why Is the Unemployment Rate So High at Full Employment?”t he unemployment rate for adult men stood at 3.5 percent. That rate, which had been substantially below that level throughout the late 1960s, would climb to 4.4 percent in the recession of 1971. More recently, after the longest economic expansion of the postwar period, the unemployment rate of prime-aged men in the late 1980s settled at just below 5 percent of the labor force. What changes in the American labor market led to this apparent secular increase in the natural rate of unemployment? Twenty years later, we revisit Hall’s question and turn up some new answers.