Tuesday, May 5, 2009

Paul Volcker and a higher rate of "natural unemployment"

The "natural rate of unemployment". Nice label. So vague. What does it really mean?

What that really means is that at any given time a set or certain percentage of the population will remain unemployed or to borrow these words-

Definition:
The natural rate of unemployment is the healthy unemployment rate that will always occur in an economy, unless it is severely overheated.


Is there such a thing as a healthy unemployment rate? Who is it healthy for? Certainly not the unemployed! So who would benefit from a natural rate of unemployment?
Who will be harmed by an even higher permanent rate of "natural unemployment" ?

‘Great Recession’ Will Redefine Full Employment as Jobs Vanish

Post-recession America may be saddled with high unemployment even after good times finally return. (would continuing high unemployment really signal the return of 'good times') Hundreds of thousands of jobs have vanished forever in industries such as auto manufacturing and financial services. Millions of people who were fired or laid off will find it harder to get hired again and for years may have to accept lower earnings than they enjoyed before the slump.

This restructuring -- in what former Federal Reserve Chairman Paul Volcker calls “the Great Recession” -- is causing some economists to reconsider what might be the “natural” rate of unemployment: a level that neither accelerates nor decelerates inflation.

This state of equilibrium is often described as “full” employment. Fallout from the recession implies a “markedly higher” natural rate of unemployment, says Edmund Phelps a professor at Columbia University in New York and winner of the 2006 Nobel Prize in economics. “It was 5.5 percent; maybe it will be 6.5 percent, maybe 7 percent.”

who knows maybe it will be even higher?

6 comments:

  1. All I know, is around here, not too many are hiring, and most are laying off employees. Those that aren't doing either, are putting their workers on work share, where they work 1 or 2 shifts a week and the rest of the time collect Employment Insurance benefits. Those so called benefits are of course at a much reduced rate and no where near match actual earnings.

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  2. Saint Skye how are you!!!
    :)

    Me, I think the whole concept of the "natural unemployment" rate is bullshit.

    It is a way to keep people down, a method of restricting a workers ability to get a fair wage for a job done, with the spectre of unemployment always lurking.

    This is the theory of Milton Friedman, he is full of shit!

    There are other forms of economic thinking.
    Friedmans is a free lunch to big business.

    Know exactly what you mean about EI!

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  3. Saint Skye!!!! Really, why I never, I mean Oooooooo grrrrr.

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  4. Let the underground economy flourish!. It may save us.

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  5. the underground economy in all probability will flourish, and the government with continue to be at war with it's citizens, through it's criminalization of an increasing amount of people.

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