ECONOMISTS at the San Francisco Fed have been working overtime to figure out whether any of America's continuing unemployment problem is structural. Today, writers are linking around this new Economic Letter, by Justin Wiedner and John Williams. Here's the abstract:

Recent labor markets developments, including mismatches in the skills of workers and jobs, extended unemployment benefits, and very high rates of long-term joblessness, may be impeding the return to "normal" unemployment rates of around 5%. An examination of alternative measures of labor market conditions suggests that the "normal" unemployment rate may have risen as much as 1.7 percentage points to about 6.7%, although much of this increase is likely to prove temporary. Even with such an increase, sizable labor market slack is expected to persist for years.

Mr Weidner and Mr Williams run a few regressions on typical labour market relationships to arrive at several different estimates of the new natural rate of unemployment. They conclude that the median increase is "about 6.7%". In January, by contrast, the San Francisco Fed published a working paper by Mary Daly, Bart Hobijn, and Rob Valetta. The authors conduct their own analysis of the labour market and find that:

[T]he natural rate of unemployment has in fact risen over the past several years, by an amount ranging from 0.6 to 1.9 percentage points. This increase implies a current natural rate in the range of 5.6 to 6.9 percent, with our preferred estimate at 6.25 percent. After examining evidence regarding the effects of labor market mismatch, extended unemployment benefits, and productivity growth, we conclude that only a small fraction of the recent increase in the natural rate is likely to persist beyond a five-year forecast horizon.

There are a few things to point out about these studies. The most interesting is the breakdown of the rise in structural unemployment by cause in the latter paper. The authors find that skills mismatch is causing very little of the increase. Rather, unemployment insurance is responsible for most of it, with productivity improvements making up the rest. This determination leads to the conclusion that the rise in the natural rate is temporary. As labour market conditions improve, unemployment benefits will lapse and demand for workers displaced by productivity gains will increase. The "temporary" finding in the first paper cites the analysis in the second.

This result is leading some writers and economists to dismiss the findings as indicating that the problem with labour markets is demand. Certainly the biggest problem with labour markets is demand, but we should tread cautiously. Both studies suggest that there has been some rise in the long-term structural rate of unemployment. This rise would likely be much higher if so many workers had not exited the labour force over the past decade. And the warning in these papers that labour market weakness will persist for some time is not encouraging; the longer workers go without jobs, the less employable they become. As I've said before, it shouldn't be controversial to provide increased support for job retraining programmes. Unfortunately, members of both parties seem anxious to cut such programmes.

A final question is how these analyses will impact the thinking of Federal Reserve officials. The Fed's Economic Letter notes that as of the fourth quarter, the Congressional Budget Office was estimating a natural rate of unemployment of 5.2% with an actual unemployment rate of about 9.6%, for a gap of 4.4%. Now, officials could conceivably be looking at a natural rate of 6.7% with an actual rate of 9.0%, for a gap of 2.3%. To a central banker, that signals a tighter labour market, with less downward pressure on wages, and more of a threat of looming inflation.

I think it would be wrong for the Fed to revise its views too much based on these datapoints, and I think it would be wrong for the Fed to react too quickly to inflation, when and if it emerges. But it also seems clear that members of the FOMC will see what they want to see. Minneapolis Fed President Narayana Kocherlakota is a nominal supporter of QE2, but he is also on record saying that most of current unemployment is structural. These studies are likely to appeal to him. And just this week, Philadelphia Fed President Charles Plosser made comments suggesting that current joblessness has significant structural elements that the Fed can't fix.

These views strike me as woefully off base. I suspect that Ben Bernanke is sceptical of them, as well. But the data points that have come out over the past two months, including those included in the Fed analyses above, have slightly shifted the monetary policy ground to make it harder to maintain an aggressively expansionary pose. And that is cause for concern, particularly for the millions of workers who remain unemployed for cyclical reasons.