Introduction
Full employment is defined as the stage at which all the resources of an economy are engaged in the production of output. Generally, an economy is said to be at full employment when the rate of unemployment is in the range of five to five and a half percent and the capital utilization capacity is at 85 percent (Mathews, 2015). Full employment is beneficial to the economy since the resources are used to produce goods that satisfy the needs of the users thus reducing the problem of scarcity. There is a correlation between full employment and natural unemployment. The latter refers to the extent of unemployment in an economy that is consistent with a growing economy that does not have an inflation. The inflation rate is likely to increase in the event that the unemployment rate falls below 5 to 5.5 percent since the economy would be trying to produce much output than its actual capacity (Daly et al., 2012).
The massive increase in unemployment rate in the United States started in 2007 during the great recession. During the great recession period, unemployment rate rose from 4.4 percent in late 2006 to 10.0 percent in 2009 (Daly et al, 2012). Unemployment was still being experienced both in the private and public sector even after the official end of the recession in June 2009. Although the economy of the United States has not experienced another recession in the recent past, there has been sluggishness in growth since June 2009, a factor that has dented the efforts to restore the economy out of its depressed condition and into full recovery. The slow pace of job creation has not been able to put up with the constant growth in the labor force and hence enough jobs have not been created to reduce the rate of unemployment. Experts reaffirm that the natural rate of unemployment is at its highest level compared to the period before the great recession.
Shadows of the Great Recession
Five years since the great recession, the US economy is still yet to attain a full recovery. The effects of the great recession are felt far and wide from the rich to the poor American citizens. The recession caused massive, long-term economic destruction, mostly on the labor market and on the living standards of many US citizens (Bivens et al., 2013). The economy, more so the labor market, is still far from recovering. Documented data illustrates that at the end of 2012, the national output experienced a deficit of $1 trillion, compared to what it would have been if the economy was experiencing full employment. Moreover, as of December 2012, there was need to create new 9.1 million jobs to reinstate the health of the labor market prior to the recession period (Bivens et al., 2013). At the fourth quarter of 2011, the unemployment rate stood at 5.9% as shown in the figure below (Federal Reserve Bank, 2016).
Source: Federal Reserve Bank of St. Louis
Although there are several means to quantify the abnormality of the current economy, jobs gap provides the best measure. “Jobs gap” refers to the number of jobs required to restore the labor market health to its state before the pre-recession (Bivens, Fieldhouse & Shierholz, 2013). The jobs gap still remain at its highest several years since the great recession. As at December 2012, the jobs gap stood at a whopping 9.1 million. Between end of 2007 and 2012, approximately 3.4 million jobs were lost and a further 5.8 million jobs ought to have been created during this period to accommodate the new entrants in the labor market (Daly et al, 2012). To prevent the unemployment rate from rising further, it is estimated that at least 10,000 jobs should be created in the economy monthly (Bivens et al., 2013, 2013). Addressing the issue of job gaps would require over three years of economic growth at an average growth rate of at least 5 percent. However, the attainment of the growth rates may require a sudden change in fiscal policy. If appropriate measures are not taken, full economic recovery remains just a dream and may not be attained anytime soon.
Source: Bureau of labor Statistics
The unemployment rate is another sign of the impacts of the great recession. As at December 2012, the natural rate of unemployment stood at 5.1 percent (Federal Reserve Bank, 2016). This is much more than the average figure of 4.6 percent reported in 2006 and 2007 respectively. The figure was also much higher than the highest rate of unemployment after the 2001 recession. Though there is an indication that some groups of citizens have been hit the hardest by the wave of recession, there is generally a higher rate of unemployment across the board (Bivens et al., 2013). The employment data of 2007 to 2012 by education category indicates that the unemployment rate is much lower for the educated workers. Of much concern is the fact that workers who hold bachelors degree or above still experience almost twice the unemployment rate prior to the recession period. Therefore, it’s worth noting that widespread unemployment is not a preserve of a certain group of workers. The unemployment rates currently depict weaknesses in the US labor market. Due to few employment opportunities, several people have never gotten the chance to be employed and hence not regarded among the unemployed. In the past few years, the labor force participation rate dropped from 66.0 percent to approximately 63.5 percent. The drop accounts for approximately 6 million worker deficit in the labor market. Economists attribute the drop to the scarcity of job opportunities in the labor market.
Employment to Population Ratio
The massive unemployment and the resilient pressure that it exerts on wages have caused a considerable drop in the household income. Documented data indicates that there was a 9.3 percent drop in the typical income of working age household between 2007 and 2011(Daly et al, 2012). During the period, there was little or no growth in household incomes. The drop in household incomes is projected to continue into the future. It’s estimated that it would take more than 20 years to experience an increase in the family incomes
Conclusion
The escalating high rate of unemployment in the United States despite the growing GDP has raised a red flag that the United States is yet to achieve full employment. The natural rate of unemployment has risen from the recommended 5.0 percent to between 5.5 percent and 6.6 percent. Currently, the official unemployment rate rests at 5.7 % (Mathews, 2015). With a full employment of between 5.2% and 5.5%, we can say that it is possible to achieve the full employment though it may take longer. The solution to all these is fiscal policy. While this proposal may seem too economically aspiring, it’s worth thinking about since little effect has been brought about by the conventional monetary policy.
References
Bivens, J., Fieldhouse, A., & Shierholz, H. (2013). From free-fall to stagnation: Five years after the start of the Great Recession, extraordinary policy measures are still needed, but are not forthcoming. Washington, DC: Economic Policy Institute.
Daly, M. C., Hobijn, B., Şahin, A., & Valletta, R. G. (2012). A search and matching approach to labor markets: Did the natural rate of unemployment rise?. The Journal of Economic Perspectives, 26(3), 3-26.
Federal Reserve Bank of St. Louis.(2016). Natural Rate of Unemployment (Long Term). Retrieved from https://research.stlouisfed.org/fred2/series/NROU
Mathews, C. (2015).Jobs report: Have we finally reached full employment? Fortune.
