6 comments in reply to "The unemployment rate at full employment is…"

  1. The Raven says:

    I think the question to ask is, “How many people are underemployed by no choice of their own?” and I think the answer can be found by comparing U-3 and U-6. By which standard, it is clear there is still plenty of slack to pick up.

    • Kevin Rica says:

      Good point Raven,

      There is no reason that the Fed could not use U6 as a benchmark. Unless, of course, inflation is not the real issue. The real issue may be the distribution of income.

  2. Chris G says:

    One thing I found depressing was that in the “Price and Wages Used to Move in Tandem” chart is that the period where wage growth significantly outpaced price growth was time of the dot-com and then housing bubbles. Absent an asset bubble of one kind or another, can wages outpace price growth? How do we (can we) achieve “healthy” wage growth?

  3. Kevin Rica says:


    I’ve always said that NAIRU was a stupid exercise in retrospective rationalization. The idea that inflation is created by an excess demand for labor is just bad economics. An excess demand for labor (EDL) should cause an increase in wages. But unless it creates an excess demand for goods (EDG), it should not cause an inflation (a general increase in the money price of goods). So NAIRU should not be a good indicator of inflationary pressures, just an indication of labor market conditions. There may be a linkage, but only if output is constrained by a shortage of the type of labor that is still unemployed when NAIRU. If the economy is constrained by the lack of labor not normally included in the unemployment rate (i.e. the unemployed are the low-skilled who are competing with newly amnestied illegal immigrants) NAIRU will seem to be high because the economy is operating at capacity.

    The big problem for wage earners is that it is monetary policy is used to slow the economy and then we let in more immigrants whenever wages start to increase.

    And don’t blame the just Koch brothers for low wages. They are not the only ones who support immigration to keep wages low. So does their think tank, the CATO institute.

    From a recent Fox News report showing both sides of the argument, we have:

    “Not everyone sees the executive order plan as an economic negative. “There is a thorny constitutional question that needs to be addressed, but from a pure policy perspective such an action will have positive effects on the United States,” said Alex Nowrasteh, immigration policy expert at the libertarian Cato Institute.

    “Legalizing some parts of the unauthorized immigration population will allow them to come forward,” said Nowrasteh. “It will also allow these unauthorized immigrants to be legal workers which means they will become more productive, making higher wages, competing on a fair and even step with the rest of American workers.””


    They (CATO and the Koch brothers) are on the same side as President Obama and Nancy Pelosi!

    NAIRU depends on immigration!

    On the other hand, we have a very good recent Bloomberg report describing what happens when you have a union of sovereignty and democracy. Even in Switzerland, occasionally, the plutocrats meet resistance.


    So we have two complementary mechanisms keeping pages low: A NAIRU-based fallacy constraining monetary policy and an immigration policy based on the premise that labor shortages are a bad thing.

    Without growth and labor shortages, how can wages increase?

  4. Larry Signor says:

    Not getting the natural rate of unemployment correct leads to a great deal of unnecessary suffering for working folks. There obviously exists some natural rate of unemployment attributable to churn in the labor market, however picking a random number for ideological purposes seems unduly cruel. Much more research on the natural rate should be one of the highest priorities for serious economists.

  5. urban legend says:

    How about when U-6 is below 7%, part-time for economic reasons is well below 3 million– probably way lower even than that for a widely-shared feeling that we’ve reached full employment — and wages are increasing measurably faster than productivity — although Kevin makes an awful lot of sense there. Without unions and cost-of-living contracts, and they must be few and far between by now, what possible mechanism can function as a limit to how low we can go? It will all get solved on a micro level, won’t it?

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