NationStates Jolt Archive

My US history teacher informed my class today that a certain amount of unemployment is good for the economy (between 6 and 9%). She said that if there is too little unemployment, it is harder for the economy to grow and develop. I was wondering why, but she moved to another topic too quickly for me to ask. Does anyone here have any ideas?

The topic came up in the discussion of Hoover's speach about eradicating poverty in 1928(i think). I plan to ask my teacher about it next class.

(its my first thread!!! woot!!!!)

As BWO said in the duplicate thread, at the very basic level it is because if there are no spare people without jobs then to start a business or to expand an existing one you have to attract workers away from their current jobs. To do that requires that you can pay them more, or in some way provide better conditions than your competitors can, for their services.

Now that may be possible for an individual company, but if you look at the economy as a whole it means that expansion would require an influx of foreign workers. That leads to a whole set of complicated issues concerning internal and external markets, wealth generation compared to inflation etc.

As BWO said in the duplicate thread, at the very basic level it is because if there are no spare people without jobs then to start a business or to expand an existing one you have to attract workers away from their current jobs...

I would have gone on at greater length about how the unemployed also function as non-producing consumers, but I have an elderly cat sitting on me and have to type one-handedly as a result.

I would say its closer to 5% in the US, 10% in Europe as the "natural" level of unemployment. This accounts for people who are in between jobs, seeking to start a new business, etc.

For a large or growing nation, wouldn't there be young workers coming into the job market every year?

A somewhat related question, do retired people count as unemployed in a census or however they decide unemployment rates?

Thanks for your replies, I can't sleep and I've been thinking about this all day.

My US history teacher informed my class today that a certain amount of unemployment is good for the economy (between 6 and 9%). She said that if there is too little unemployment, it is harder for the economy to grow and develop. I was wondering why, but she moved to another topic too quickly for me to ask. Does anyone here have any ideas?

The topic came up in the discussion of Hoover's speach about eradicating poverty in 1928(i think). I plan to ask my teacher about it next class.

(its my first thread!!! woot!!!!)
I would guess to have a bit of "flex" so that there wont be lag time if there is a spurt of growth specialy if it is a localized spurt

10% in Europe as the "natural" level of unemployment.
Heh, I think you mean "way too freaking high".

Just look at how crappy the economies of France and Germany are.

For a large or growing nation, wouldn't there be young workers coming into the job market every year?

A somewhat related question, do retired people count as unemployed in a census or however they decide unemployment rates?

Thanks for your replies, I can't sleep and I've been thinking about this all day.
unemployment are people who are a part of the work force (ie over 16 in the US) and actively seeking employment (so those who are retired are not unemployed, nor are stay at home moms)

and it usually works out that an equal or greater number are joining than leaving

And do the unemployed who don't look for jobs and never will look for jobs help the economy in any way? I know they are consumers, but all their money is coming from taxes, so it seems like they should be a burden on the economy, or at least enough of a burden that they don't really increase potential economic growth.
In my neighborhood, there are plenty of people who support families completely on wefare, and their children rarely grow up to look for jobs. I always assumed that these people were "unemployed", but are they? And if not, what category do they fit in.

And do the unemployed who don't look for jobs and never will look for jobs help the economy in any way? I know they are consumers, but all their money is coming from taxes, so it seems like they should be a burden on the economy, or at least enough of a burden that they don't really increase potential economic growth.

I've never heard anybody say that the perpetually unemployed are good for the economy. I think what your teacher was talking about was what everybody already talked about, people starting their own businesses or between jobs.

From what I remember, unemployment is calculated by those who are either drawing unemployment or who have registered as unemployed. Thoe who have dropped out of the job market all together for one reason or another are not counted, it's why the employment numbers are a rough guide and not a nose count.

Below 5% and there's pressure on business to raise wages. It's a simple bit about supply and demand. If there's no-one around to fill a position at $5 /hour, the only option is to increase the pay until you find someone willing to work for that amount.

And do the unemployed who don't look for jobs and never will look for jobs help the economy in any way? I know they are consumers, but all their money is coming from taxes, so it seems like they should be a burden on the economy, or at least enough of a burden that they don't really increase potential economic growth.
In my neighborhood, there are plenty of people who support families completely on wefare, and their children rarely grow up to look for jobs. I always assumed that these people were "unemployed", but are they? And if not, what category do they fit in.
well, as far as the welfare department knows, unless they are on disability, they are "looking" for a job

Thanks and goodnight. (I so haven't tripled my post count in a single night because of insomnia...)

I'll still probably continue to think that generally there should be less unemployment than more because of my neighbors who refuse to get jobs and their children who have to suffer. :mad:

Even if it may be good for the economy, its probably not good for indivisual somethingoranother(one reason i'm trying to go to sleep now again is that I can't form complete thoughts anymore)(I actually don't know what I was going to say:( )

And do the unemployed who don't look for jobs and never will look for jobs help the economy in any way? I know they are consumers, but all their money is coming from taxes, so it seems like they should be a burden on the economy, or at least enough of a burden that they don't really increase potential economic growth.
In my neighborhood, there are plenty of people who support families completely on wefare, and their children rarely grow up to look for jobs. I always assumed that these people were "unemployed", but are they? And if not, what category do they fit in.

Two points here.
1. Even if the people are not actively looking for work, their mere existence enables employers to hold pay rolls down to some degree. Those that do work will mostly assume that those that do not would prefer to have an income rather than no income. As such they are perceived as a threat to that workers status as employed and encourage that worker to be less militant in their pay demands.

2. There is a class called the underclass who are not employed and not unemployed. They make up the black economy:- the drug dealers, the thieves, the pimps etc. They will tend to claim welfare if they have a family, as this provides an opening to other benefits, but often it will only be one member of the family claiming welfare (a grandparent often) whilst other members carry on in their anonymous existence. This is based on my personal experience of living in council estates in the North of England. It may be organised differently in the USA.

Unemployment calculations are a big sham and I wouldn’t trust them. They only count the unemployed people who are in the system and jumping through all the government hoops to get a job. They don’t count the people who have given up, the people who are living on the streets, those who are discriminated against because of disabilities, people who are being supported as dependants by others.

We always get glowing economic reports about unemployment being down during the Christmas holiday season, but it’s temporary and most of it is crappy, part time, retail hell work. People employed part time, who can’t make ends meet on what they make are considered fully employed under most statistics.

If the economy is booming enough that unemployment is very low, immigration will always take up the slack as there are a lot of people who are willing to travel to another country to make a living.

I'll still probably continue to think that generally there should be less unemployment than more because of my neighbors who refuse to get jobs and their children who have to suffer. :mad:
It's a long story, and most of the basics have been covered already...but if you really want to learn more about that sort of relationship, and what it really means for the individual if inflation goes up versus unemployment going down - there is a lot of good reading out there.

I suppose Keynes' General Theory would be a good place to start...but some of it is quite heavy.

My US history teacher informed my class today that a certain amount of unemployment is good for the economy (between 6 and 9%).

For the economy, no. For the profits, yes. It's called NAIRU by neoliberal economists (Non-Accelerating Inflation Rate of Unemployment) and the "reserve army" by marxists. It's the same concept (except that the neoliberals say it's all fine and normal, and the marxists say it's a major flaw of capitalism): if unermployment rate goes too low, the workers are in a strong position to negociate working contracts, and can ask for higher wages. Which means either lower profits, or higher prices (and therefore inflation). Since neoliberals don't even think about "lower profits" as a possibility, it means higher prices (and inflation) for them.

Absolutely. In economics there is a level of employment called "full employment" where anyone who wants a job can get it, usually around 4%. This means there is no cyclical unemployment (ie unemployment due to the business cycle) and the productive capacity of the economy is at or near the beginning of the vertical part of the aggregate supply curve, which means any move lower in unemployment is going to raise the price level but leave output and consequently real GDP increasingly unaffected.

Also, there is the Phillips curve, which traces the relationship between unemployment and inflation and has been accurate in the absence of supply shocks to the economy (like the 1960's, 1990's, and possibly today) as a guideline to inflation. However, it is also problematic because the definition of full employment varies so much.

At present the US is about 0.3 to 0.5 percentage points away from full employment, but if it reaches it there will be inflationary risks in the future. However, there is also the argument that accelerating productivity and the globalization of the labor market make it possible for a lower rate of unemployment to be sustained without worsening inflation.

Here in NZ our unemployment rate is around 3.68% (I think).. However, I know nothing of ecomony and whatnot.

The threory works just like the concept of monetarianism, which dictates that to prevent inflation and at the same time promote wealth you have to reduce the amount of liquid cash in an economy (by not printing as much and by removing some of it from circulation). This makes money more rare and in turn increases its buying power.

Firstly if all the people have jobs, no one can be fired because there is no one to replace them, therefore workers can in theory demand better wages with in turn increases the amount of money which in turn reduces the value of money in the market place.

Strictly speaking, having more money (even in small quantities) moving around in an econmy is not a bad thing, but if not managed properly it can lead to massive devaluation and ultimately dipression.

Secondly, as long as there are unemployed people there is a source of manpower to create new businesses. That is why it is often, though not always, a good idea to give a dying industry no help, which in turn creates people desperate enough to retrain and get new jobs in new industries (creative distruction) - sadly, as with British coal miners, American factory workers and African farmers and Russian beurocrats, these workers are often too late in their careers to retrain and too specialised. Often there are cultural links to industries or geographic and resourse restrictions that make the end of one form of employement emotionally difficult and the begining of new one near impossible.a new one