Finance and Economics Discussion Series (FEDS)
August 2026
United States of U-Star
Abstract:
This paper estimates state-level trend unemployment rates (trend U-star) based on the trend components of unemployment inflows and outflows across unemployment durations. The estimated trend U-stars, particularly the portions attributable to long-termunemployment, have levels and dynamics that vary substantially across states. Long-termunemployment makes a relatively small contribution to trend U-star in agricultural states, but takes a larger share for Rust Belt states and several states in the Sun Belt. While higher educational attainment and population aging put downward pressure on U-star, the effects of industrial structure and labor-market rigidities are mixed. Using the estimates of state-level trend U-star, we revisit previous work on state-level Phillips curves and find that the estimated slopes of forward-looking inflation equations are driven bymovements in trend U-star rather than by cyclical variation in the unemployment rate.
Keywords: Trend unemployment rate, natural rate of unemployment, unemployment duration, duration dependence, trend-cycle decomposition, nonlinear state space model, extended Kalman filter, Nelson–Siegel model, new-Keynesian Phillips curve
DOI: https://doi.org/10.17016/FEDS.2026.060
PDF: Full Paper
Disclaimer: The economic research that is linked from this page represents the views of the authors and does not indicate concurrence either by other members of the Board's staff or by the Board of Governors. The economic research and their conclusions are often preliminary and are circulated to stimulate discussion and critical comment. The Board values having a staff that conducts research on a wide range of economic topics and that explores a diverse array of perspectives on those topics. The resulting conversations in academia, the economic policy community, and the broader public are important to sharpening our collective thinking.