The natural rate of full employment
Major macroeconomic aims of any government include minimized inflation, balance of payments equilibrium and full employment. Full employment means very low unemployment. Although in any country there will be some unemployment resulting from college graduates and other people looking for new jobs, economic analysts suggest that a rate of employment up to 3 percent can be termed as full employment. Full employment means that the macro economy of a country is currently operating at its full capacity. It means there is no incidence of output gap or demand deficient unemployment.
Frictional unemployment refers to unemployment that is constantly present within the economy due to the temporary transitions made by employees and employers. This arises due to a certain amount of mismatch, imperfection, risk, and compromise made by employees and employers within the labor market. This is especially as employees search for better jobs and therefore opt to remain jobless as they hold out awaiting a better compensating job. Conversely, structural unemployment refers to a long lasting and permanent type of unemployment that arises due to fundamental changes within the economy. It arises when there is a primary mismatch between the demand available for jobs and the available supply of jobs. It also arises due to employees lacking the necessary skills required to do certain jobs, the available jobs are offering small wages, or the available jobs as in other regions where workers are unable to access.
Although the United States economy has been able to avoid another recession, the impacts of 2007-2009 economic recession are still in play. After the end of recession in December 2009, unemployment continued to rise for eight months partly due to federal fiscal policy. In 2012, unemployment rate stood at 7.8 percent. According to September 2014 statistics by U.S. Bureau of Labor Statistics, unemployment rate went down by a margin of 0.2 percent to 5.9 percent. Unemployed individuals in U.S. amount to 9.3 millions. Statistics from the Federal Reserve Bank of St. Louis’ indicates that the short-term Natural Rate of Unemployment in the second quarter of 2014 (2014 Q2) is 5.78 percent. In the third quarter of 2014, statistical data from the Bureau of Labor and Statistics indicate that the median weekly earnings of 107.9 million U.S. full-time wage and salaried employees are $790. This is an increase of 205 percent compared to the year 2013. The jobless rate went down in 31 states of U.S. as job openings increased to 4.8 million in August.
Economists consider three main factors that are responsible for increases in full employment, also known as the natural rate of unemployment. These are a mismatch between the various attributes of the unemployed and those of job openings, the availability of extended unemployment insurance benefits, and the level of uncertainty concerning economic conditions within the general economy. The authors argue that there has been a limited increase in the mismatch between the attributes of the unemployed and those of job openings but extended unemployment insurance benefits have contributed greatly to the increase in the rate of natural unemployment. In addition, unusual uncertainties in the economic conditions have resulted in increased unemployment as firms have reduced hiring.
Bibliography
Daly, Mary C., Bart Hobijn, Ayşegül Şahin, and Robert G. Valletta. "A Search and Matching Approach to Labor Markets: Did the Natural Rate of Unemployment Rise?" Journal of Economic Perspectives, (2012) 26(3): 3-26.
Federal Reserve Bank of St. Louis. Natural Rate of Unemployment (Short-Term). Accessed October 29, 2014 http://research.stlouisfed.org/fred2/series/NROUST
Mankiw, Gregory. Principles of Economics. New York: Cengage Learning, 2014.
Marshall, Alfred. Principles of Economics. New York: Palgrave Macmillan, 2013.
US Bureau of Labor Statistics. Sept. jobless rates down over the year in 339 of 372 metro areas; payroll jobs up in 314. Accessed October 29, 2014 http://www.bls.gov/
