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(MNI) Ottawa
(MNI)

U.S. unemployment could remain elevated by 2 percentage points two years from now as the pandemic forces many laid-off people into a more difficult search for work in another industry, a Chicago Fed researcher told MNI.

After building to that peak, the higher jobless rate may persist for a third year before fading away, according to a paper by Joel David published Thursday.

The research is based on stock market data showing the pandemic-driven damage varies widely across different industries. The divergence is significant because finding a new job in a different field is harder with obstacles like the need for different skills and finding contacts to help with hiring leads, David said in an interview.

"When we see a reshuffling of workers across different industries that takes more time, we tend to see an increase in the unemployment rate," he said. The research "gives some ballpark about what the effect might be just through this reallocation channel," he said.

JOB MARKET SCARRING

The findings come as the Fed seeks to return to its goal of maximum employment and weighs the degree of permanent economic damage. David's Chicago Fed study wasn't designed to project the unemployment rate itself or where the equilibrium rate will be through the pandemic, but underlines how this recession is different and likely more damaging over the long run.


The S&P 500 declines across 49 industries between the February peak and the end of April was the widest in data back to 1948. That included plunges of more than 35% for aircraft, coal, and fabricated products and small gains in pharmaceutical products and retail.

Bumping the jobless rate up by 2 percentage points is substantial against a pre-pandemic jobless rate of 3.5%, and implies extra downward pressure on wages. Congress is also debating whether another USD1 trillion is enough to help laid-off workers as some states slow down moves to re-open an economy at risk from a rise in new Covid-19 cases.

FAST SHUFFLE

While the study ran through a range of scenarios that showed the extra job-market friction could be larger or smaller, the 2% figure is much more plausible than extreme cases, David said.

Other labor data outside of the study suggest the transition could be a bit smoother, he said. Recent evidence suggests the fastest job "reallocation" since the end of World War II, with about 5% of the workforce making that kind of switch since January.

"It does look like the economy is able to reallocate workers across industries in sort of a way that doesn't last forever," he said.

MNI Ottawa Bureau | +1 613-314-9647 | greg.quinn@marketnews.com
MNI Ottawa Bureau | +1 613-314-9647 | greg.quinn@marketnews.com

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