Economic Article

EconomicArticle

EconomicArticle

Thearticle, Unemploymentin America: Closing the gapby the Economist, talks of the unemployment levels in America. Thelabour markets in America appear to have undergone permanent damage.In November 2013, the unemployment rate was at 7 percent as comparedto 6 percent in January 2014. This indicates that unemployment wouldhit the 6.5 percent threshold of the Federal Reserve, and at thispoint it may deem necessary increasing interest rates. In spite ofthis drop, the labour market has not recovered completely. Accordingto current research, labour supply in America might becomepermanently diminutive.

Acurrent reported provided by Alexander Lewis of Nomura Securitiesshowed the output gap as computed by three labour market indicators.The results indicated that the percentage of individuals inemployment decreased from 63 percent in 2007 to less than 59 percentin 2009. Since then, the percentage has not moved showing the failureof the output gap to close. On the contrary, the rate of unemploymentis 1.1% as compared to its projected level of 505 percent. This showsthat the output gap has completely closed. In 2007, the labourparticipation rate was 66 percent as compared to 63 percent in 2014.According to the Congressional Budget Office (CBO), the dropped is asa result of workers who were discouraged and thus decided to stoplooking for jobs. Another reason is the ageing baby boomers anddemographics.

Bothlong-term and short-term unemployment forecasted inflation inAmerica. Short-term unemployment, according to the Federal ReserveBank, explicated the failure of wage growth to drop further.Inflation has dropped to 1 percent and this is below the 2 percenttarget of the Fed. In order to drop unemployment, the Fed can allowinflation to go up beyond its target.

Reference

TheEconomist (15 February, 2014). Unemploymentin America: Closing the gap.Retrieved fromhttp://www.economist.com/news/finance-and-economics/21596529-americas-labour-market-has-suffered-permanent-harm-closing-gap