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Unemployment Supplement to Reffonomics

This article explores the concept of full employment, defined as the state with zero cyclical unemployment, while recognizing the persistent presence of structural and frictional unemployment. It discusses the "natural rate of unemployment" often stated at 4%. The article employs Delaware's unemployment data from August 2001 to August 2010, highlighting the correlations between civilian labor force statistics and economic costs of unemployment through the lens of Okun's Law. Understanding these dynamics is vital for analyzing economic performance and labor market health.

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Unemployment Supplement to Reffonomics

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  1. Unemployment Supplement to Reffonomics

  2. Clarifications • “Full-Employment Unemployment Rate” • A.K.A. “Natural Rate of Unemployment” • Full-Employment is achieved when there is zero CYCLICAL unemployment • There is always some degree of Structural and Frictional Unemployment! • So, even if the Natural rate of unemployment is 4%, if there is currently zero cyclical unemployment, then the economy is said to be “fully-employed.”

  3. Delaware unemployment rate: August of 2001 through August of 2010 Year-beginning in 2001

  4. Delaware Unemployment Data as of August 2010 • Civilian Labor Force: 422,700 • Employed persons: 386,800 • Unemployed persons: 35,300 • Unemployment Rate: (Unemployed persons / Civilian labor force) X 100 = 8.35% • Population of Delaware: 885,122 (2009 est.)

  5. Economic Costs of Unemployment • GDP Gap – the difference that exists between actual GDP and potential GDP as a result of fluctuations in unemployment and it’s effect on production.

  6. Okun’s Law • Establishes a relationship between unemployment rate and GDP gap. • “for every 1 percentage point which the actual unemployment rate exceeds the natural rate, a GDP gap of about 2 percent occurs.” • NOT A TRUE LAW! Not accurate 100% of cases.

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