where aggregate shocks have a permanent effect on the unemployment rate. If agents' wealth decreases, the unemployment rate … increases for a potentially indefinite period. This makes unemployment rate dynamics path dependent as in Blanchard and Summers … (1987). I argue that this feature explains the persistence of the unemployment rate in the U.S. after the Great Recession …

The negative and stable relationship between an economy's aggregate demand conditions and overall unemployment is well …-documented. We show that there is a large degree of heterogeneity in the cyclical sensitivities of unemployment across worker and … economy groups. First, unemployment is more than twice as sensitive to aggregate demand in advanced as in emerging market and …