What’s Behind the Declining Trend Unemployment Rate?

Federal Reserve Bank

Andreas Hornstein

Research

16 Pages

The authors examine why the US trend unemployment rate has declined for decades, separating demographic shifts from changes within worker groups. They estimate it fell from 7.8% in 1976 to 4.8% in 2024, with education and aging explaining over half, and project a further decline to 4.4% by 2044.

Key Takeaways

Trend keeps falling: Trend unemployment fell from 7.8% in 1976 to 4.8% in 2024 and is projected to decline another 0.4 percentage point by 2044.
Education drives decline: Rising educational attainment lowered trend unemployment about 1.1 percentage points, while population aging reduced it another 0.7 point.
New cohorts matter: Changes within demographic groups explain just under 1 percentage point of decline, with newer cohorts entering the workforce with lower unemployment risk.
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