The Labor Market in the Great Recession

From the perspective of a wide range of labor market out-
comes, the recession that began in 2007 represents the deepest downturn in
the postwar era. Early on, the nature of labor market adjustment displayed a
notable resemblance to that observed in past severe downturns. During the lat-
ter half of 2009, however, the path of adjustment exhibited important depar-
tures from that seen during and after prior deep recessions. Recent data point
to two warning signs going forward. First, the record rise in long-term un-
employment may yield a persistent residue of long-term unemployed workers
with weak search effectiveness. Second, conventional estimates suggest that
the extension of Emergency Unemployment Compensation may have led to a
modest increase in unemployment. Despite these forces, we conclude that the
problems facing the U.S. labor market are unlikely to be as severe as the Euro-
pean unemployment problem of the 1980s.