Study: Uncertainty Has Caused Higher Unemployment
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Some of the most useful economic research happening now deals with uncertainty’s harmful effect on the economy. A study by economists Sylvain Leduc and Zheng Liu at the San Francisco Federal Reserve finds that uncertainty has increased unemployment.
From analyzing U.S. consumer and British business survey data, they conclude that “had there been no increase in uncertainty in the past four years, the unemployment rate would have been closer to 6% or 7% than to the 8% to 9% actually registered.” Leduc and Liu found that “higher perceived uncertainty is associated with higher unemployment, falling inflation, and lower short-term interest rates.”
The uncertainty effect is similar to a fall in aggregate demand. “The private sector responds to rising uncertainty by cutting back spending, leading to a rise in unemployment and reductions in both output and inflation,” writes Leduc and Liu.
In both sets of research, we’re seeing that economic uncertainty, much of it caused by policymakers, is holding back the economy and causing more Americans to remain out of work.