The Atlanta Fed's Center for Human Capital Studies hosted Dr. Robert Shimer of the University of Chicago at noon on Tuesday, September 6, 2011. Dr. Shimer spoke to staff at the Bank's research department about current conditions in the U.S. labor market, citing some of his recent research. Students and faculty from Emory University, Georgia State University, and the Georgia Institute of Technology also attended the event.
Dr. Shimer discussed hypotheses that seek to explain the particularly dismal state of the current U.S. labor market. He presented what he referred to as "competing or complementary hypotheses," aimed at exploring the two greatest problems faced by the labor market today: a lack of jobs and the undesirability of currently unemployed workers. Dr. Shimer was critical of the widely held view that low aggregate demand is responsible for the lack of jobs and focused instead on explanations that rely on rigid wages and declines in labor supply. He described two distinct reasons that have been offered for long-term unemployment. One is that unemployed workers gradually lose their skills over time and that makes them less attractive to employers. An alternative explanation is that there are fixed differences in skill types that are hard to change and that the long-term unemployed may primarily be those with low skills. He pointed out that these explanations are very different in terms of their policy implications, but that it was hard using current, available data to discriminate between them.
Dr. Shimer's latest research focuses specifically on rigid wages. Rigid wages create a wedge between labor supply and labor demand in the labor market. When this specification of the labor market is embedded in a model of the macroeconomy, the model produces a very slow recovery in employment and output. Based on his preliminary findings, real wage rigidities appear to be a primary factor driving the struggles of today's labor market and anemic GDP growth.
Dr. Shimer is the Alvin H. Baum Professor of Economics at the University of Chicago. He is cochair of the NBER Economic Fluctuations and Growth "Macro Perspectives" group and is an editor of the Journal of Political Economy.
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