Question

5. Our current unemployment rate is 13.3% in the United States. Explain as clearly as possible what that 13.3% means (where does that number come from?) Then explain how that compares to our goal for unemployment.

Answer 1

*If unemployment rate is 13.3 percent, it means that 13.3 percent of the people in the labour force are unemployed.

The number is calculated using the following formula

Unemployment rate = ( unemployed people/ labour force)* 100

Labor force consists of people from the total population above 16 years of age , not in any institutions and who are either employed or unemployed but actively seeking for jobs. And a person is unemployed if he or she is willing to work at the prevailing wage rate , but can't find unemployment.

So in our case

( unemployed people/ labour force)*100= 13.3

* Now, let's compare this to our goal of unemployment.

Untill the 1990's ,economists thought that 5.5 percent to 6 percent was the lowest unemployment could go without generating accelerating inflation. So, their policies targeted 5.5 percent to 6 percent unemployment. But in the mid -1990s , the unemployment rate fell significantly below 5.5 percent, and inflation actually declined, so economists had to resume what is possible. Many economists came to a conclusion that goal for unemployment should be lowered.

At present, unemployment goal set by the federal reserve is 3.5 percent to 4.5 percent.

Compared to the goal, current unemployment rate is very high . This indicates that, great deal of job loss occurred in our economy. If the present rate continued or declined, it will prove to be detrimental to the economic growth.