How Long Until We Reach Full Employment?
This is very much a back of the envelope calculation. Here's what I did. I took the month to month difference in the unemployment rate (from 1948:2 to 2011:2), then took two averages, one when the difference is positive (unemployment is increasing) and one when the difference in negative (unemployment is falling):
Average monthly increase in unemployment: 0.2143
Average monthly decrease in unemployment: -0.1143
Notice that, as is evident in the graph, increases in the unemployment rate are, on average, larger than decreases. Thus, unemployment generally rises faster than it falls.
Next, I used the second number, -0.1143, to forecast the monthly changes in the unemployment rate (the red line in the graph). Since the precise value of the natural rate of unemployment is unknown, here are a few benchmarks:
7% unemployment in July of 2012
6% unemployment in March of 2013
5% unemployment in December of 2013
4% unemployment in September of 2014
If anything, relative to the last two recoveries, this forecast is optimistic. Even so, it will still take two years to get to 6% unemployment (and if the natural rate is closer to 5.5% at that time, as I expect it will be, it will take another five months to fully close the gap). Things may be looking up, but we have a long way to go and it's too soon to turn our backs on the unemployed.
Posted by Mark Thoma on Sunday, March 6, 2011 at 01:17 AM in Economics, Unemployment |
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