« links for 2011-03-05 | Main | Employee Pensions are *Not* Bankrupting States »

Sunday, March 06, 2011

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 on Sunday, March 6, 2011 at 01:17 AM in Economics, Unemployment | Permalink  Comments (52)


    Feed You can follow this conversation by subscribing to the comment feed for this post.