US Unemployment beyond perfect?

[Prince of the Poodles]

http://www.foxnews.com/story/0,2933,227282,00.html

I took macroeconomics last year, so I may be a little fuzzy, but isnt 5% unemployment considered "perfect" in economics?

[Edit] The term is "full", not "perfect". Thanks Don Corleone.

This must be good news for the republicans, as many people undoubtedly vote with their wallets.

Workers' average hourly earnings climbed to $16.91 in October, a sizable 0.4 percent increase from September. That increase was bigger than the 0.3 percent rise economists were expecting. Over the last 12 months, wages grew by 3.9 percent.

So really, the only major issue for the democrats is Iraq. Although a serious problem for the republicans, I dont think it is good for the dems either. Ive yet to hear a plan from the left.

To think, if Bush hadnt invaded Iraq, he may have been another Reagan. Without Iraq, he hasnt done too bad of a job, imo.

[Scurvy]

http://www.foxnews.com/story/0,2933,227282,00.html

I took macroeconomics last year, so I may be a little fuzzy, but isnt 5% unemployment considered "perfect" in economics?

Just out of interest, why is 5% considered perfect? (simply, for someone who isnt economically minded)

[Don Corleone]

I've never heard it described as 'perfect', but 5% is defined as full employment. The reason for that is at any given time, 5% of the population will always be unemployed: because they're between jobs, because they've gone back to school, because they're in transitional or seasonal type work, etcetera.

[Scurvy]

thanks - i was thinking 0% would be, but then realized how stupid that would be

[Prince of the Poodles]

I've never heard it described as 'perfect', but 5% is defined as full employment. The reason for that is at any given time, 5% of the population will always be unemployed: because they're between jobs, because they've gone back to school, because they're in transitional or seasonal type work, etcetera.

Thanks! Thats what I was trying to say..

[Major Robert Dump]

Does the unemplyment rate only take into consideration who is able to work, I.E. it excludes kids and really old people. And if so, how does it determine who is able, since you can get a job when you are 13, and senior citizens are now expected to work into their late 60s. Who is being counted here? What if your working but not qualified to be counted, or vice versa? Where to immigrants, illegals and people on work visas fit in?

Also, when 92,000 jobs are "added" does is this less the jobs that were eliminated. If I fire a full time worker and replace him with 2 part timers have I just "added two jobs?" I only ask these questions because I want to know. I do, however, know that if a CPA did someones books like the GAO, the Senate and the House does the federal coffers, that the CPA would land in prison.

What worried me are things like this, from the article posted:

On the payroll front, job losses in manufacturing, construction and retail offset gains in professional and business services, education and health, government and elsewhere.

This seems to always be the case.

[Ice]

I'm taking microeconomics right now, which doesn't deal with this, but I took a semester of micro/macro in a high school a couple years ago.

I recall the unemployment rate is the percentage of people who are unemployed but currently seeking work. Anyone who does not seek work and is umemployed is not considered.

[Ice]

To think, if Bush hadnt invaded Iraq, he may have been another Reagan. Without Iraq, he hasnt done too bad of a job, imo.

I would have to agree with that statement. Bush will be remembered from what has happened it Iraq. A shame really.

[Seamus Fermanagh]

5% has always been labeled "full" employment because:

For a healthy economy you need most people out there producing

BUT

some small dose of unemployment is considered healthy in preventing workers from being to scare a commodity and hence driving up salaries and inflation.

As is usual in economics, not everyone agrees.

[Prince of the Poodles]

I thought it was funny that Pelosi immediately came out with the "Bush is the worst on the economy since the depression", despite the numbers she was asked to comment on.

[Devastatin Dave]

If Bush were a democrat, Katie Couric and the rest of the leftist in the media would have to be chained up to keep them from dry humping Bush in an intervue.

[KukriKhan]

Right on cue. Ever faithful, ever profane, I give you:

our DDave.

[AntiochusIII]

Katie Couric?

Who?

[Productivity]

Just out of interest, why is 5% considered perfect? (simply, for someone who isnt economically minded)

As Don pointed out, it's not perfect, but full. He's got the basics of it in a mechanics way of why you can't have 0% unemployment and have a working economy. A more detailed understanding needs to look back a bit through the history of economics.

In the late fifties (I think 1958) an economist Phillips came out with an idea he called the Phillips curve. This is basically a plot between inflation and unemployment, which would indicate that they are inversely related. ie. turn up inflation, unemployment goes down. Governments can turn up inflation through their control of the volume of money in the economy.

A very basic summary of the theory behind it goes, at Christmas 2006, employers and employees negotiate their wages for 2007. At the same time the government decides the level of inflation for 2007 (through monetary policy). If the government increases inflation beyond what the employers and employees negotiated for, you get a situation favourable to the employers, so they employ more people (prices have grown at a rate exceeding wages). Particularly important is what happens if there's an election at the end of 2007. Voters are more likely to vote for you if they're employed, so it's likely that a government will increase inflation.

At this stage, unemployment isn't viewed as having a perfect level and policy makers think they can move it around when they want. The phillips curve relationship sort of holds for a while in practice, providing a good inverse looking relationship.

Come the 1970s and this theory gets hit twice. First off stagflation turns up, you have high unemployment and high inflation, it's just not working out in practice. Secondly Friedman and a bunch of other economists comes along and says the whole things garbage because it assumes employees are idiots, or you only work in a two time period world, either way it's a grim outlook for the practical applications of this.

The theoretical attack is that if you bump the inflation on employees one year, next year they're going to demand more and be wary of the government doing it. You might get a drop in unemployment for that year, but the employees aren't stupid, next year they're going to demand a higher level because they expect the higher inflation. You're in a situation that isn't favourable to employers anymore and so they'll start laying people off, returning to your original level. But you now have higher inflation, both the employees and the employers expect it and so you're going to struggle to bring it down now unless you can restore your credibility.

This led to the idea that there was some 'natural rate' of unemployment, which became to be known as the (somewhat cumbersomely named) Non-Accelerating Inflation Rate of Unemployment (NAIRU). Essentially this is the unemployment rate which when the economy is running smoothely is provided by frictional unemployment of people changing jobs etc. It implies that the economy can be tricked for short time periods by unexpected bumps or falls in inflation, but in the long run playing around with inflation will not do anything other than move the inflation level, unemployment will allways revert to the NAIRU.

This NAIRU also has implications for inflation, it is generally followed that when real unemployment<NAIRU, inflationary pressures are on the rise, or when real unemployment>NAIRU there's a risk of deflation.

Calculating the NAIRU is a real pain, it essentially corresponds to full output which is the maximum level of production an economy can sustain and there's a lot of effort put into it. You need people out of work but looking for jobs. Graduates graduate, people leave jobs, companies go bust, new companies form etc. This sort of thing is frictional unemployment and it's healthy (up to a point anyway). 5% is a generally viewed as a good measure of it, but I can dig out plenty of other numbers if I have to.

Essentially this NAIRU idea says that there's a level of unemployment we have to have to have a well working economy and not have it move around which is where you get your optimal 5% idea from.

[Samurai Waki]

Actually a 4% Unemployment is considered economically the best, however 5-8% is considered very good to reasonable, anything over 9% gets worse the higher you go, once you hit about 13% Chances are you're headed for a major economic downturn, if your not already a 3rd world country.

The US during the great depression achieved a remarkeable 11% Unemployment Rate at Times.

[Major Robert Dump]

If I dry hump Bush does that make me gay?

[whyidie]

If I dry hump Bush does that make me gay?

Not if you're high on meth!

[Del Arroyo]

"Full" employment is a different figure for each country, because each system has its own conditions, this is what they taught me.

[Crazed Rabbit]

Ironically, you don't see lots of news about the economy, unless its from the NYT on how some poor people are struggling to get by.

But as you said 5% is pretty good.

CR
(I don't know about Bush being another Reagan without Iraq - he started a huge medicare program (and those things never go away), did nothing to scale back gun control, spends like a drunken sailor, etc.)

[Gawain of Orkeny]

But as you said 5% is pretty good.

Actually a 4% Unemployment is considered economically the best

Were now down to 4.4.

[Banquo's Ghost]

How can this be true?

I have been assured by very reliable sources on this forum that those pesky Mexicans are taking all your jobs and undercutting American workers into redundancy.

How can you have fifteen billion illegals working in the country and still have Americans with full employment?

[Prince of the Poodles]

...Its a big country.

[Xiahou]

How can this be true?

I have been assured by very reliable sources on this forum that those pesky Mexicans are taking all your jobs and undercutting American workers into redundancy.

How can you have fifteen billion illegals working in the country and still have Americans with full employment?

No, they're just depressing wages and bankrupting our social welfare programs.

[yesdachi]

Michigan has just recently dropped into the single digits (thanks Starbucks for opening a new location everyday for the last 5 years). The unemployment rate is not completely telling of the current economic situation. Many of the jobs that were lost here were much higher paying (and had better benefits) jobs than those that have replaced them.

Yesdachi’s recommendation to those who have not yet selected a career: Pick one that cannot be outsourced.