Me today @NRO, "The unprecedented surge in unemployment benefits and other government-transfer programs during COVID-19 is showing increasing signs of long-term economic impacts."…
The changes in the labor market over the course of the pandemic raise the specter of “hysteresis,” where short-term economic shocks have long-term impacts, even after the shock subsides. This concept became widespread during the European unemployment dilemma of the 1980s.
As discussed in Ljungqvist & Sargent (1998), the enhanced social-insurance programs in Europe turned temporary shocks into persistent increases in unemployment. Average unemployment rates in France doubled from the 1970s to the 1980s, with 2/3 unemployed for 6 months or more.
Many employers & market participants are still hopeful that fall will bring a stronger labor-market recovery. But we now face the possibility that policy changes will have turned the temporary upheavals of the coronavirus recession into persistent reductions in employment.
Relative to 1980s Europe, the problem in the US now is less unemployment than non-employment: dropping out of the labor force. With a nod to Ljungqvist & Sargent, a better title may have been, "The American Non-Employment Dilemma".…

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More from @Bellmanequation

14 Oct
There are always "temporary" factors.
1973: OPEC embargo hit in October. By December CPI was up 8.9% y-o-y & FOMC that month voted to *ease* to offset oil shock.
In 12 months following, inflation would hit 12.1%, while real GDP would fall 1.9%.… Image
Shout-out to Alfred Hayes of the @NewYorkFed (…) who was the lone dissent in FOMC vote December 1973 Image
March 1979: y-o-y CPI inflation was 10.3%. FOMC: "A significant easing of rapid rise in prices was suggested... recent increases in prices represented temporary factors." Voted to keep policy unchanged.
In following 12 months inflation would hit 14.6% & real GDP would fall 0.8%. Image
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