Natural Rate Of Unemployment

Unemployment is one of the major issues in the U.S economy.Unemployment, also referred to as joblessness, is defined by the Bureau of Labor Statistics as people who do not have a job, have actively looked for work in the past four weeks, and are currently available for work, people who were temporarily laid off and are waiting to be called back to their job. There will always be some sort of unemployment in the economy, no matter how well its doing When the economy is doing well, it can often lead to low unemployment and also inflation. The natural unemployment rate determines the lowest rate of unemployment an economy will reach. My paper will focus on three main topics; the natural rate of unemployment, why unemployment we always have unemployment

Some Fed members thought the long-run unemployment rate would’ve gone up to 4.5%. However, there are good reasons to expect the natural unemployment rate to be lower today and stay lower. One way to determine the natural rate of unemployment is looking at recent time periods when the U.S economy was at full unemployment. When the past time periods were compared it was seen that the labor force was much older than it was in any of those years because of the aging baby boomers, participation of older workers and low amount of youth participation. This causes to drop down the natural rate of unemployment. Another change is that the labor force is becoming more educational. Unemployment declines with education so this would lower the equilibrium unemployment rate. The only way for unemployment rate to move up is by labor force participation to significantly improve. If this happens the natural rate of unemployment won’t fall much

Even though the unemployment rate was at 4.1%, inflation was only at 1.8%. Many expected the unemployment rate to drive up wages and the overall price but it seemed to not happen. When you take out the volatile food and energy prices, inflation was just 1.5%. Both percentages are below the Fed’s target inflation rate of 2%. When labor is in short supply, its price should go up. One good explanation is that the unemployment rate isn’t a great measure of the tightness of the labor market. Most people who start working in any given month weren’t even counted as unemployed the month before. They might have been in school, the army, or somewhere else, not actively seeking a job. This source of new hires has become increasingly important in recent years as the unemployment rate has fallen. The employment-to-population ratio fell sharply in the 2007 to 2009. The ratio is unlikely to get back up where it was in 2007, because the baby boomers are aging. When the business cycle and contractions were compared, it was shown that average prices did tend to rise faster when employment was rising and to rise more slowly when employment was falling. The growing amount of women workers has increased since the early 1960s, which has increased the employment-to-population ratio. Meanwhile, the inflation rate has been decreasing since the late 1970s. Over the entire period, those two powerful factors mask the Phillips