I have some fundamental questions about the unemployment rate itself. Why does it exist in the first place? Is there any THEORETICAL underpinning to the notion of a NAIRU? Why is it that the unemployed 5% (or whatever it is) can't be added productively to the economy? I mean, there's no law of physics which states than Unemployment < NAIRU = inflation, is there?
I know the standard line is that output won't go up, so unemployment rates which are less than the NAIRU only cause inflation. Is this simply an empirical assertion, or is there more to it? When you take into account the fact that the REAL unemployment rate is 50-100% greater than the official unemployment rate due to underreporting and the like, it is a fairly profound statement to say that 7-10% of the population is superfluous in terms of output.
Secondly, you could argue that this is a good thing from a distributional standpoint. Why isn't it better to have everyone employed and earning a payckeck, albeit with inflation, than to have no inflation and 5% of the population permanently on the outs, relying on gov't assistence or some form of charity for survival?
Is this peculiar to capitalist economies, or all economies? Are there other economic systems which could eliminate unemployment? I want to know what you all think about this.