Unemployment rates

Peter Kilander peterk at enteract.com
Thu Sep 3 21:06:07 PDT 1998

>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?

Well, actually there is the Natural Rate of Unemployment theory - key word being "Natural" - which suggests that if unemployment goes below 6% or so, all hell breaks loose. I remember this was fashionable back around '94, but considering all evidence to the contrary it has yet to become law. Come to think about it, I haven't heard much about it lately. It ranks up there with all the anti-minimum wage theories.


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