What's the optimum unemployment level?

[Broomstick]

@TSBG

I don’t know what you mean about benefits, but it is certainly true that in a tight labor market U6 would start to approach U3, and if wages were being driven up some people would join the work force who aren’t in it now–younger retired people, stay at home parents, perhaps some full-time students.

If you’re looking at the US “U” numbers stay-at-home-parents are not counted among the unemployed.

If you’re applying for foodstamps and you’re a stay-at-home-parent with kids over the age of 5 or 6 (I don’t recall the exact age) you will be classified as unemployed and told to find a job or your food benefits will be cut off.

For social security purposes, being a stay-at-home-parent means you have no income, so that will affect how much you will get when you retire. This is one reason why post-retirement poverty is more common for women than for men, the years they spend raising kids contributes nothing to their old age pension, never mind that it’s essential work for the next generation and the continuation of society.

And so on.

[TSBG]

@Broomstick

If you’re looking at the US “U” numbers stay-at-home-parents are not counted among the unemployed.

If you’re applying for foodstamps and you’re a stay-at-home-parent with kids over the age of 5 or 6 (I don’t recall the exact age) you will be classified as unemployed and told to find a job or your food benefits will be cut off.

For social security purposes, being a stay-at-home-parent means you have no income, so that will affect how much you will get when you retire. This is one reason why post-retirement poverty is more common for women than for men, the years they spend raising kids contributes nothing to their old age pension, never mind that it’s essential work for the next generation and the continuation of society.

And so on.

Your first point about the U numbers is just repeating what I said, which is not what you said.

WIC, which is one food assistance program, does end after 5. But there are others. Work requirements vary by state for some welfare programs. I don’t know how people affected by these requirements are counted in the U numbers.

I don’t know what paying, or not paying, into SS has to do with the calculation of employment numbers in the present day.

[Broomstick]

@TSBG

Your first point about the U numbers is just repeating what I said, which is not what you said.

Yes, I was acknowledging that.

WIC, which is one food assistance program, does end after 5. But there are others.

Yes, I know that. I’ve even been on one, SNAP, which is why I know the requirements. WIC is NOT SNAP, and when people say “foodstamps” they mean SNAP, not WIC.

And, strictly speaking, WIC does not end after 5, because it applies also to pregnant and nursing women, who I would hope are greater than 5 years of age. It ends for the kids when they hit 5.

Work requirements vary by state for some welfare programs. I don’t know how people affected by these requirements are counted in the U numbers.

As I said - a stay-at-home-parent is NOT considered employed for SNAP, but employment OR full time student status is a requirement to keep receiving SNAP longer than 3 months. So a SAHP would NOT be included in the U numbers but WOULD be considered “unemployed” by the SNAP program and would have the choice of either finding work, enrolling as a full time student, or losing benefits. If a job is found then the formerly SAHP would then be included among the employed.

I’m not sure why you have trouble understanding that.

I am not familiar with the rules for Temporary Assistance for Needy Families (TANF) but I imagine they have them.

I don’t know what paying, or not paying, into SS has to do with the calculation of employment numbers in the present day.

The POINT is that they are NOT considered employed. This is not such a problem in these days of many women working/having careers, but in the old days, and for single women, it has an enormous impact when they collect SS. So counting them among the “not employed” (or rather, NOT counting them at all) has at times condemned women who spent their lives raising the next generation (which is an important task to society) to poverty in old age.

Women interrupting their work life to raise children, during which time they are considered “not employed”, impacts their final SS benefit.

Are you having trouble understanding that?

[Ruken]

I think everyone else gets it; I wouldn’t worry about one person not.

[spamforbrains]

how does the concept of “underemployed” figure into this? The people who go into debt to get educated and then end up working minimum wage jobs? That seems to be a bigger problem in many areas today than simply being “unemployed.”

[dracoi]

@spamforbrains

how does the concept of “underemployed” figure into this? The people who go into debt to get educated and then end up working minimum wage jobs? That seems to be a bigger problem in many areas today than simply being “unemployed.”

Really, it’s no different from people who didn’t go to college and nevertheless have obsolete or insufficient skills. It’s part of structural unemployment, and people have already discussed how it’s measured.

In the end, it’s a mis-match of supply and demand. Ideally, you’d like it to be zero, but in the real world, the two never match up perfectly. These folks will be under-employed until you can either retrain them or until there’s an increase in jobs that demand their skills. Neither of those things happen overnight, so there is certainly a non-zero amount that represents the best cost/benefit compromise.

[Rigamarole]

Not everyone is needed in the workforce in order for society to run smoothly. There’s already vast amounts of paying, superfluous, make-work jobs and (I’d argue) entire industries that are completely unnecessary and add little to no real value to society. Of course, that starts becoming a matter of opinion as to what’s valuable and what’s not.

Over the past ~100 years there has been an absolutely massive paradigm shift due to: A. a very large increase in women in the workforce and B. a very large decrease in manual labor jobs due to industrial automation and computers. Yet despite all that, society has invented a plethora of jobs that never existed before, and expects nearly all able-bodied adults to be working at least one of them.

It’s strange, because you’d think we’d be working less and not more, now that we can meet our needs so much more easily. I’m sure you’ve heard the statistic about how for most of history 90+% of the population worked in agriculture because they had to, and now ~2% of the population does and those workers can feed the world far more copiously than ever before. Yet people seem to have this pesky need to have a purpose in life. Or something.

[Doyle]

I have always heard that 3.5% in considered full employment.
The 3.5% represents the transitioning and emerging workforce.

[Tired_and_Cranky]

@Broomstick

As I said - a stay-at-home-parent is NOT considered employed for SNAP, but employment OR full time student status is a requirement to keep receiving SNAP longer than 3 months… The POINT is that they are NOT considered employed.

The problem for people trying to understand what might be a good rate of unemployment is that “unemployed” and “not employed” are not the same thing. In simple terms, “not employed” is anyone who doesn’t have a job. “Unemployed” is anyone who doesn’t have a job and is looking for one. You seem to treat these two terms as synonymous. They are not. Stay-at-home parents and the retired are not employed but they are, paradoxically, not “unemployed” because they aren’t looking for jobs.

Also, this discussion started asking about a good target for the unemployment rate. I’m not sure how SNAP requirements are relevant to this discussion.

[QUOTE=Chronos]
What precisely the optimum value is is a Great Debate, but it probably isn’t 0%, because 0% unemployment makes growth impossible. Suppose you did have an economy where the rate really was 0%, and now suppose that someone comes up with a good idea for a new business. Whom does that entrepreneur hire?
[/QUOTE]

It doesn’t make growth impossible though it’s probably close enough for most practical purposes. You can continue to grow the economy by using labor more efficiently (moving labor to the jobs where it is most valuable), replacing labor with capital (e.g., replacing housekeepers with Roombas so the housekeepers can work somewhere else), or expanding the workforce (e.g., getting retirees to come out of retirement or stay-at-home parents to become go-to-work parents). Zero unemployment is likely to increase inflation, as others have noted, and unexpected high inflation is likely to hit retirees on a fixed income particularly hard, so it’s possible that inflation would encourage some retirees to start working again even if they didn’t want to.

[puddleglum]

@Blake

Umm,Atamasama, this forum is for factual answers. You should know at least something about a subject before answering.

In a modern society, an unemployed pool is seen as being both inevitable and indispensible. The unemployed pool is what gives the labour market flexibility. If everyone were employed, then the only way that an employer could get another worker would be to offer more money than that worker’s current employer, leading to rapidly spiralling wages, massive inflation and a level of uncertainty that would make offering most services impractical.

In a system with 100% employment, which you claim is optimal, what happens when the local hospital needs to open a new wing? To employ a janitor, the hospital needs to offer more money than the local fast food restaurant is offering, In fact, because janitor is less desirable work, they will need to offer substantially more more. So if McDonalds is offering $10 an hour, the hospital will need to offer $15. But McDonald’s isn’t going to go short staffed, so we rapidly see a bidding war between the hospital and McDonalds for a 25 year old with no education or skills.

That will repeat for every single job in the country, and the result will be ever-increasing costs for health care and food, as well as every other commodity in the country.

Then we have the problem that nobody will invest in a factory if they know that wages are spiralling upwards and they can’t guarantee that their entire workforce won’t be wooed away next week by higher wages offered by a competitor.

0% unemployment means that labour has become limiting on economic growth. That’s not a good thing for anybody. Like every other essential commodity, their needs to be a surplus to keep the price affordable. No surplus and the commodity becomes a luxury item that only the wealthiest can afford. that might sound good, but everyone in the country has to pay for wages. Even janitors have to pay the wages of the people who operate the checkouts at the local market or fix potholes in the local streets. If only the wealthiest can afford to pay for labour then the cost to janitors also increases. In a market with 100% employment the janitor will demand more money for his work, which means the street fixes and checkout chicks will demand more money and the whole thing spirals out of control.

Getting back to the OP, the optimal unemployment rate is controversial, but generally considered to be between 2% and 7%. It also varies depending on the flexibilty of the economy. In terms of economic change when there are large numbers of jobs being offered, a higher unemployment rate s generally optimal. In a static economy when there are few new jobs on offer, a lower rate is optimal.

Essentially you are aiming for an unemployment rate that reflects the people walking from one job to another, rather than people being laid off and not being able to find a job.

This ignores productivity. A job cannot pay more than is produced by the person holding that job (on average). If there is a shortage of people willing to do work at a wage that is lower than the marginal product of that job then the job will go away. This would be a good thing as people are transferring from low productivity jobs to high productivity jobs. The more people who are working at high productivity jobs the more stuff will be produced and prices for that stuff will not rise. Rising wages does not cause inflation. Changes in the supply and demand of money causes inflation.
Look at China, over the past 20 years literally tens of millions of people have gone from subsistence farmers producing a couple of dollars worth of food a week to factory workers producing several dollars worth of stuff an hours. Wages in China have skyrocketing during that time but inflation has mostly been under control.
If China does not convince you look at Japan, they have an unemployment rate which is around 3% and yet have so far failed to get inflation up to 2%.

The real answer is that there is always frictional unemployment which is a good thing. Matching the right employee to the right job takes time and is necessary for a highly functioning economy. Frictional unemployment should be around 2%.

[dracoi]

@Rigamarole

It’s strange, because you’d think we’d be working less and not more, now that we can meet our needs so much more easily. I’m sure you’ve heard the statistic about how for most of history 90+% of the population worked in agriculture because they had to, and now ~2% of the population does and those workers can feed the world far more copiously than ever before. Yet people seem to have this pesky need to have a purpose in life. Or something.

I don’t think it’s purpose so much as the ability to easily take on debt, store unlimited wealth and work longer hours year-round (thanks to things like transportation, lighting, heating, etc.)

[Chronos]

And the optimal amount of frictional unemployment, whatever it is, probably changes with conditions. For instance, if a person is unemployed because they’re transitioning between jobs, then how long they stay unemployed will depend on the difficulty of the job-finding process itself. And with modern resources like online job-search services, that’s probably easier now than it used to be, and so the amount of unemployment from people in transition is probably less.

[Do_Not_Taunt]

@dracoi

Really, it’s no different from people who didn’t go to college and nevertheless have obsolete or insufficient skills. It’s part of structural unemployment, and people have already discussed how it’s measured.

Bolding added.

I don’t believe this is correct. If you’re ‘underemployed’ in the sense of working fewer hours than you’d like, you’re counted in U-6. If you’re ‘underemployed’ in the sense of working at a lower-end or lower-paying job than you’d like, but working full-time, you’re counted as employed under all official unemployment metrics.

I welcome a cite if I’m incorrect.

[Hari_Seldon]

I spent six months in Switzerland in 1967. They didn’t have exactly 0% inflation, but it was close. It was hard to hire people like garbage collectors, street cleaners and the like. They gave temporary work permits to literally hundreds of thousands of foreign workers, possibly a million. And guess what? It didn’t really solve their problem because those workers created demand for food, shelter, and clothing, which had to be supplied. Yes, they sent some of their earnings back home, so they played a minor role in relieving the shortage of labor, but only minor. I think of this when all the immigrants are accused of “taking our jobs away”.

[spamforbrains]

I don’t believe this is correct. If you’re ‘underemployed’ in the sense of working fewer hours than you’d like, you’re counted in U-6. If you’re ‘underemployed’ in the sense of working at a lower-end or lower-paying job than you’d like, but working full-time, you’re counted as employed under all official unemployment metrics.

how do they count them? I’ve never had anyone contact me and ask about my employment status. Most “unemployed” statistics seem to revolve around people collecting unemployment assistance, which only includes people who have been laid off, not people who walked away or were fired. How do you collect info on under-employment? If asked, pretty much everyone would say they’d prefer to make more money.

I must admit economics baffles me. The idea of constant economic growth seems to violate many laws of physics.

[Do_Not_Taunt]

@spamforbrains

how do they count them? I’ve never had anyone contact me and ask about my employment status. Most “unemployed” statistics seem to revolve around people collecting unemployment assistance, which only includes people who have been laid off, not people who walked away or were fired. How do you collect info on under-employment? If asked, pretty much everyone would say they’d prefer to make more money.

I must admit economics baffles me. The idea of constant economic growth seems to violate many laws of physics.

The BLS (Bureau of Labor Statistics) samples both households and businesses. The fact that you haven’t been contacted (neither have I) only means you weren’t in any random sample so far.

I’m sure everyone would like to make more money, which is why underemployment as a measured statistic is only about hours and not dollars, and even then, I think if you’re full-time, you’re employed, even if you like more hours.

[octopus]

@Chronos

What precisely the optimum value is is a Great Debate, but it probably isn’t 0%, because 0% unemployment makes growth impossible. Suppose you did have an economy where the rate really was 0%, and now suppose that someone comes up with a good idea for a new business. Whom does that entrepreneur hire?

Someone who wants a better job? Not all jobs are identical and labor is fluid.

[Chronos]

OK, so what if the entrepreneur’s business is a new fast food restaurant, or something else for which the jobs would be minimum wage?

Or, even if the new jobs are highly desirable ones, such that you can hire people away from other employers, what do those employers do now to refill the vacancies?

[Philster]

People/workers are an item that is affected by supply/demand.

There are times (even now) when there is zero or near-zero unemployment for a given type of worker, and that has led to all sorts of problems, challenges, spiraling costs, delayed growth, immigration/visa laws, etc.

You don’t need to reach 0% unemployment to see the problem. Find a recruiter or set of recruiters who just CANNOT find a given type of worker and look into the cascading set of problems that creates for the company, the area they choose to expand into, their inability to compete, etc.

And if you work for said company, you risk them leaving, or never adding that new product line, etc, and your career is stunted, delayed, etc.

There are some jobs that seem impossible to fill, because they are near-zero unemployment rates and no one can find a candidate. That’s some bad news right there.

.

[mbh]

@spamforbrains

how do they count them? I’ve never had anyone contact me and ask about my employment status. Most “unemployed” statistics seem to revolve around people collecting unemployment assistance, which only includes people who have been laid off, not people who walked away or were fired. How do you collect info on under-employment? If asked, pretty much everyone would say they’d prefer to make more money.

I must admit economics baffles me. The idea of constant economic growth seems to violate many laws of physics.

The Current Population Survey

Methodology[edit]
Approximately 60,000 households are eligible for the CPS. Sample households are selected by a multistage stratified statistical sampling scheme.[7] A household is interviewed for 4 successive months, then not interviewed for 8 months, then returned to the sample for 4 months after that. An adult member of each household provides information for all members of the household.
As part of the demographic sample survey redesign,[8] the CPS is redesigned once a decade, after the decennial census. The most recent CPS sample redesign began in April 2014.[9]
Employment classification[edit]

Unemployment rate as a percentage of the civilian labor force in the United States according to the U.S. Bureau of Labor Statistics showing the variation across the states[10]
People are classified as employed if they did any work at all as paid employees during the reference week; worked in their own business, profession, or on their own farm; or worked without pay at least 15 hours in a family business or farm. People are also counted as employed if they were temporarily absent from their jobs because of illness, bad weather, vacation, labor-management disputes, or personal reasons.
People are classified as unemployed if they meet all of the following criteria:
They were not employed during the reference week
They were available for work at that time
They made specific efforts to find employment during the 4-week period ending with the reference week. (The exception to this category covers persons laid off from a job and expecting recall)
The unemployment data derived from the household survey in no way depend upon the eligibility for or receipt of unemployment insurance benefits.
Those who are not classified as employed or unemployed are not counted as part of the labor force. These people —those who have no job and are not looking for one— are counted as “not in the labor force.” Many who are not in the labor force are going to school or are retired. Family responsibilities keep others out of the labor force. “Discouraged workers" are a subset of those who are “not in the labor force”.[11]

ETA: Sorry about the Wall-O-Text. It was easier to read on the wiki page I copied it from.