This chart on unemployment duration echoes some of my earlier concerns about unemployment demographics.
All durations under 27 weeks seem to have flatlined months ago. Unemployment of 26+ weeks is still declining at a, more or less, linear rate. If we continue to see this pattern, it looks like unemployment would bottom around 6% or more around 2016. As I outlined in the earlier post, I would be tempted to chalk this potentially higher full employment level up to structural frictions created by federal governance, but most of it is probably the product of an older, wealthier population with more discretion about employment.
Here is a proportional graph of unemployment by duration, where the very long term trend of higher durations, is even more clear - and over this time frame must be the result of something other than age demographics. Technological advances should have reduced the searching frictions that might prolong unemployment, but a stronger safety net and more sources of interim income must be even stronger forces in the direction of longer durations. I wonder if employers have developed better methods for identifying productive potential employees, so that there is a bifurcation of unemployed workers who find work quickly and those who struggle for a longer time. Higher homeownership could potentially limit the ability to move for work. But, I'm just spit-balling here.
Below is a graph of unemployment over time, with several forecasts, based on unemployment insurance claims. Through the cycle, there is a logarithmic relationship between claims and unemployment, and the current relationship suggests an unemployment rate of about 5.5% once the emergency unemployment insurance has finally settled down for this cycle, but the current unemployment rate is above trend, suggesting a resting rate of closer to 6%.
I wonder if more consumption smoothing by the workforce is helping to elongate the business cycle. As the recovery ages, some portions of the labor force re-enter the workforce more slowly than they had in previous generations. That might help to extend the recovery for several years.
On the next cycle, one question will be whether we continue to have a hawkish Fed, or if the low secular growth that is caused by the aging baby boomers will goad the Fed into inflationary tactics, which might lead to something that looks like the stagflation of the 70's. Real interest rates are bound to stay pretty low through the next cycle or two, but nominal rates will depend somewhat on the Fed.