	Introduction

During the past few years, economists have been debating how much of the increase in unemployment since the start of the 2007-2009 recession is due to reduced demand for goods and services compared with compositional changes entailing worker reallocation across industries and areas. Their relative contribution to the increase in the unemployment rate since 2007 has different implications for the pace at which the economy can grow without spurring inflation and for which public policies are most appropriate to lower an unemployment rate that remains elevated long after the latest recession's end in June 2009. Fiscal and monetary policies often have been used to jump-start aggregate demand and job growth for the cyclically unemployed. If the increase in unemployment is largely due to the sluggish pace of output growth since the recession's end, then economic theory suggests that fiscal and monetary stimulus would be suitable strategies for lowering the unemployment rate from its still-elevated average of 8.1% in 2012. Given the different implications of cyclical and structural unemployment for policymakers, this report distinguishes between the relative magnitude of the two in recent years. Structural unemployment arises from obstacles to the worker-to-job-matching process that lengthen unemployment spells. Impediments to unemployed workers quickly moving to firms with available jobs include mismatches (between the skills or locations of jobless workers and the skill requirements or locations of available jobs), the composition of the unemployed (toward workers who permanently lost jobs vis-à-vis workers temporarily laid off, for example), and the characteristics of labor market institutions (such as the wage-replacement rate and duration of unemployment benefits). Under certain conditions, however, cyclical unemployment may evolve into structural unemployment. As discussed in detail below, this finding is supported by several empirical studies which estimated that any increase in structural unemployment that occurred accounted for a minority of the rise in the U.S. unemployment rate. The results do not suggest that the nation is facing a "new normal" of elevated unemployment rates for years to come. Rates returned to pre-recession levels in only construction and the federal government. Evidence of Somewhat Increased Structural Unemployment

Anomalies that occurred during the latest recession and ongoing recovery suggest that structural impediments to efficiently matching workers with jobs may have contributed more to the increase in the unemployment rate from 5.0% in December 2007 to a peak of 10.0% in October 2009 than they did during earlier fluctuations in the business cycle. Their conclusion that the U.S. labor market has not attained "a new normal" of high unemployment rates for years to come is partly due to the temporary nature of the Emergency Unemployment Compensation program enacted in 2008 and most recently extended by Congress through 2013. At no other time during the postwar period was long-term unemployment more prevalent. The Vacancy Rate and the Unemployment Rate

Yet a third anomaly suggestive of structural problems in the labor market is the nature of the relationship between the job vacancy (openings) rate and the unemployment rate after the recession's end in June 2009.
The unemployment rate greatly increased after the onset of the latest recession in December 2007, when it measured 5.0%. The rate peaked at 10.0% in October 2009, four months after the recession's official end in June 2009. More than three years into the recovery, the unemployment rate averaged 8.1% in 2012. Given its still elevated level, policymakers may continue to be concerned about how to spur economic growth and create jobs.
Over the past few years, Congress has used fiscal policy and the Federal Reserve (Fed) has used monetary policy to put the economy on a path toward the level of demand for goods and services that preceded the 2007-2009 recession. Firms react to recessions by laying off workers, and the deeper the downturn in the business cycle, the greater the rise in unemployment that results. Expansionary fiscal and monetary policies commonly have been used to remedy what is known as cyclical unemployment.
The unemployment rate has not been as responsive as had been hoped to the countercyclical measures undertaken by Congress and the Fed. Consequently, some have suggested that an increase in another type of unemployment—referred to as structural unemployment—has accounted for much of the rise in the unemployment rate from pre-recession levels. These observers assert that the rise in unemployment due to change in the structure of the economy represents "a new normal" of elevated unemployment rates for years to come.
Structural unemployment develops for different reasons than cyclical unemployment. Structural unemployment results when jobseekers do not move quickly into vacant jobs. Obstacles that lengthen the spell of unemployment (i.e., prolong the period of job search) include mismatches between the skills or locations of jobless workers and the skill requirements or locations of available jobs. Another impediment is the composition of the unemployed, such as more workers whose connection to their former employers is permanently severed (i.e., fewer workers likely to be recalled from layoffs once business revives at their former employers). A third factor that may contribute to long-term unemployment is known as labor market institutions, such as unemployment benefit programs.
The measures enacted by Congress have chiefly focused on alleviating cyclical unemployment. To the extent that the still-high unemployment rate results from the slow pace of output growth during the recovery, economic theory suggests that fiscal and monetary stimulus would be suitable strategies for further reducing joblessness. To the extent that structural factors have contributed to the still-high unemployment rate, economic theory suggests measures such as promoting the education and retraining of workers who permanently lost jobs in hard-hit industries (e.g., home building) so that they can acquire the skills needed to obtain employment in other industries.
This report assesses the relative magnitudes of cyclical and structural unemployment as they respond to different policy measures. An analysis of changes since 2007 in a variety of labor market indicators across industries and areas finds patterns that strongly suggest most of the increase in the U.S. unemployment rate is cyclical (i.e., due to depressed aggregate demand). Empirical studies suggest that, although structural unemployment has temporarily increased, it accounted for a minority of the rise in the unemployment rate in recent years.