Duration structure of unemployment hazards and the trend unemployment rate

Abstract

This paper develops a new method to estimate the trend unemployment rate in which the duration profile of unemployment hazards is taken into account. The duration profile is characterized by three time-varying elements—level, slope, and curvature. The model also recovers the duration component of trend unemployment rate and the trend mean duration of unemployment. The estimated trend unemployment rate declines by about 3 percentage points between 1980 and 2019. Its short-term duration component decreases, whereas the long-term component increases, resulting in a rise in the trend mean duration of unemployment. The opposite trends in duration components suggest falling frictional unemployment but rising structural unemployment.