The 'new normal' unemployment rate: 6.7%

By Annalyn Censky, staff reporter


NEW YORK (CNNMoney) -- Economists used to say an unemployment rate around 5% was normal, but the recession may have changed all that.

The new norm may now be more like 6.7%, according to a paper released by the Federal Reserve Bank of San Francisco Monday.

The report comes amid much discussion about what the "new normal" should be. Unemployment has remained above 9% for 21 straight months, and economists and policymakers, including Fed Chairman Ben Bernanke, have repeatedly said it's likely to remain high through the next several years.

And that spurs experts to ask, is high unemployment a permanent economic condition, or merely a temporary phenomenon?

Experts at the San Francisco Fed say a higher rate is probably temporary, but driven by some deep-seated structural issues.

Unemployment is staying high partly because of a mismatch between workers' skills and what employers are looking for, say John Williams, an executive vice president at the San Francisco Fed, and research associate Justin Weidner.

Roughly 44% of the unemployed have been out of a job for more than six months. Their skills deteriorate and it becomes even harder to find a job.

Add to that the housing bust, which left millions of homeowners underwater on their mortgages, and it's harder for workers to relocate to places where jobs are growing more rapidly.

All those factors may have raised the "normal" unemployment rate, Williams and Weidner say.

They also point to jobless benefits, which Congress has extended from 26 weeks to 99 weeks.

While those extended benefits help struggling families get by, "they may also reduce the incentive of the unemployed to seek and accept less desirable jobs," Williams and Weidner say. To top of page

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