Unemployment Risk

Fluctuations in the risk of a large increase in unemployment are examined. The analysis compares medium-term risks-that is, risks at a 3-year horizon-to those over a 1-year horizon. The primary approach involves quantile regressions. Robustness exercises examine risks using a logistic regression to model the probability of a large increase in the unemployment rate. U.S. experience reveals an elevated risk of large increases in unemployment over the medium term when credit growth is high and when the unemployment rate is low. Near-term risks to unemployment are closely tied to changes in corporate bond spreads or the slope of the yield curve, consistent with research on recession prediction, but these factors do not play a sizable role in medium-term risks. These results highlight the value of considering different near- and medium-term risk factors.