Hie Joo Ahn and Jeremy RuddThis 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.
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