Based on Week 3 (RWM 4.2) The unemployment rate in the US is currently under 4%,
ID: 1135586 • Letter: B
Question
Based on Week 3 (RWM 4.2) The unemployment rate in the US is currently under 4%, which is close to historically low for the US economy. What does this suggest about cyclical unemployment in the US currently? Using the reasoning described in "The 'Natural Rate' of Unemployment," (RWM 4.2) explain why might it be unwise for the US government to try to push the unemployment rate lower than 4%? Why might businesses not want the government to try to further decrease the unemployment rate? Use the term "reserve army of unemployed" in your answer.Explanation / Answer
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Answer-
The actual rate of employment is the rate of unemployment, which is actually prevalent in the economy and is being faced by the labor force that is willing to undergo work and take up jobs. On the same side the natural rate of unemployment is the rate that would be naturally or automatically present in the economy. This rate is the reflection of a healthy employment situation in the economy. Currently the rate of employment is higher than the natural rate of unemployment.
This is happening due to the fact of global slowdown and lack of political policies stability. Due to imposition of lot sanction by internal and international government the employment domain has suffered a lot and there been a lot of job loss, which implicates that the natural rate of unemployment has been crossed by actual unemployment rate.
The unemployment rate is calculated based on different age groups and regions of the country. All the household that are present in the census and has a relevant age group person are surveyed and result of this survey is matched with the existing data base records. Then the people are grouped into categories as employed, unemployed but seeking fresh jobs, unemployed but out of job seeking, not returning to workforce people, temporarily unemployed or have switched jobs. All the people are grouped and analyzed for the rate of unemployment.
Such result can have certain oddities like in classification as the person might not fall in a group and hence classified as unemployed or vice-versa. Other can be mis-calculation of data or data being skewed to a particular group or class.
Therefore the above clearly implies that the cyclical unemployment will be present in every economy be it US or Europe. This type of unemployment is always periodic and this is why the government must not try to push it down any further. The rate has been 4% and going any below this will affect the natural rate of unemployment and also harm the reserve army of unemployed i.e. the people who have been sitting on bench and searching for employment.
Similarly the businesses also might not want the government ot reduce the rate of unemployment and further as this effort might increase their cost of labor and also prevent them from securing talented workforce at the time of economic and cyclical shift in the economy.
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