Macroeconomics defines full employment as the level of employment rate without the incidents when cyclical employment or deficit of demand occur. Federal Reserve Bank of St. Louis carried out the analysis of the Natural Rate of Unemployment. The evaluation resulted in 5.0 percent of the natural employment rate in the second quarter of 2014. Later in September 2014, the Bureau of Labor Statistics tracked the actual rate of unemployment being at the point of 6.0 percent. In the theory, the cyclical rate of unemployment occurs if the level of actual rate of employment is higher that the natural rate of unemployment. By doing a simple mathematical operation, the case of cyclical rate of unemployment occurs and equals 1.0 percent. Therefore, the fact that the numbers are almost equal and the US almost reache full employment, the state is still 1.0 percent away from the full employment. Being a single percent for a multimillion country is a significant figure that could go up or down. Are there any ways to define the tendency?
Daly, Hobijn, Sahin, and Valletta attempted to answer this question in the article A Search and Matching Approach to Labor Markets: Did the Natural Rate of Unemployment Rise. The authors put emphasis on the rise of the rate of unemployment. The findings were justified by the Federal Reserve Bank of St. Louis by reflecting the peak of the figure in its graph. The research team aimed at finding the reasons behind the rising tendency of the natural rate of unemployment. They narrowed their assumptions to three main factors. One of them states that mismatch of the of job opening in their features affect the rate. Another important factor or situation that affects is extended benefits for unemployed. These benefits slow down the intention to seek job. Moreover, the person who receives unemployment insurance benefits but in fact stopped working may continue benefiting from the program. The last factor concerns unstable economic conditions. This is the other side of the problem that highlights that companies might be unwilling to employ more labor. The relation of the given factors explains why the rate of unemployment followed the rising tendency between 2007 and 2012. The same triangle may be the reason for the rising pattern of natural state of employment in the following years.
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"The Rising Vector of Natural Rate of Unemployment".
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