Unemployment Rate In The United States

The US has recently reached the lowest unemployment rate： 4.5%. In this article, the author provided different aspects of US’s low unemployment rate and the result of such a low unemployment rate.
Comparing to the unemployment rate (10%) after 2008’s recession, US is now reaching a relatively low unemployment rate. A low unemployment rate is one of the four macroeconomic objectives that economists always want their nations to achieve. Unemployment is simply defined as the state of being out of work, seeking for a job but unable to find a job. The author stated that US employers added more work opportunities to their payrolls. The job growth in the last year reduces the unemployed people and “maintain low unemployment once the labor market
is back to full health.” All the graphs in the article showed that the US is now slowly going back to a healthy economy.
But why the author stated that it is sufficient to maintain a low unemployment to US’ labor market and economy? Thinking about the consequence of high unemployment rate, it could be harmful to the individual household, society and the nation’s economy. To household, a high unemployment directly influences their income, because more people are being unemployed. It reduces the household’s purchasing power. They will also have a high potential of having physical and mental illnesses because of the unemployed stress. Moreover, a society could have an increasing poverty and crime rate. It will lead the society to be more unstable. Most importantly, a high unemployment rate harms the nation’s economy. As household has less purchasing power, they are now consuming less. So it will lead the nation’s aggregate demand to decrease. And the nation will also produce under its own production possibility curve. In the other words, the nation will produce under-utilization of the resource. As a result of the decreased aggregate demand, workers’ wage will also face a downward pressure. Because firms need to cut their output. They will reduce worker’s wage in order to decrease their cost of production. So the last bad consequence of high unemployment rate is “Downward pressure wage for workers.”

In the news, the author pointed out the recession in 2008 left a room for wages to go up without a huge inflation rate. This is actually good for the US economy. Usually, there is an inverse relationship between unemployment rate and inflation. The relation can be represented in the following graph.

From Bureau of Economic Analysis, the change in real GDP at 2008 was even negative.
The decrease in real output left out a contractionary gap. Firms need to reduce their output and fire workers to meet the economy’s decreased aggregate demand. Assuming Point D is US’s economy after 2008. From the graph, the inflation rate R4 is negative at the same time the unemployment is as high as r4. After 2010, under the government's expansionary policies and other interventions, the US’s economy started to return. The unemployment rate decreased annually. So from the short-run Philips curve above, it could represent a movement from D to left along the curve.AS the unemployment rate decreases, US’s inflation rate increases.Without the 2008’s recession, the inflation rate might reach as high as R1. A very high inflation decreases the value of money, which is bad for the economy. A desirable inflation rate is around 2%-5%. In the last decade, 2008’s recession plays a role of cushion for government’s expansionary policies. It prevents the US to have a huge inflation which can also cause other economic issues to the
economy.

As a result of shifting the AD curve from AD1 to AD2, both the average price level and Real GDP increase.
Before the decreases in the unemployment rate, US is producing far away from the Full employment point (Yfe). But as unemployment rate decrease and AD increases，it is now producing at Y2， which is closer the full employment. As a response to the increased aggregate demand, US’s output also increases. US’s economy is now producing at a more efficient level. A nation with a low level of unemployment is achieving its own production possibilities. To the government, low unemployment would decrease their spending on unemployment benefits. Because most of the workers have their own job. Moreover, the tax revenue also increases because more people get their jobs. Governors could use those saving on unemployment benefits and revenues collect from workers on capital expenditures. For example transportation development. Investment on new technology. These government spending brings many benefits to the society and could cause economic growth to the nation.
In order for US’s economy to achieve full employment, there are several things that the government could do to improve the labor market. In the article, the author mentioned that 8.7% of part-time employed people are unable to find a full-time job that they want. This group of people is considered as frictional unemployed workers. The percentage of frictional unemployment rate shows that the labor market in the US is inefficient.
The system needs to be improved. In short run, a well-developed labor market could lead more unemployed people to find their job. In long run, it could cause economic growth.