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It’s important because the Fed is interested in the NAIRU - non-accelerating-inflation rate of employment. Below a certain level of unemployment, the NAIRU mod
by opportune 6y ago
It’s important because the Fed is interested in the NAIRU - non-accelerating-inflation rate of employment.
Below a certain level of unemployment, the NAIRU models expect wage inflation (companies offering higher and higher wages to get new employees in a tight labor market) which drives inflation in the broader economy. This model kind of assumes that the labor force is inelastic. In reality if unemployment were low, a lot of “unemployable” or underemployed people would probably start looking for jobs, which makes it so current unemployment rates don’t accurately reflect how close we are to NAIRU.
- websites2323 6y agoIf I understand this correctly, we are long overdue for this change, since it was reported way back in October 2019 [0] that wages, despite low unemployment, hadn't increased. I suspect that politicians have been hesitant to poke the bear on unemployment numbers since the top-line has been so low that they could claim victory, but we are now reaching a point where the signals are so far divorced from the reality that they have no choice but to integrate something else to bring it more in line. [0]https://www.cnbc.com/2019/10/07/that-50-year-low-in-unemployment-isnt-helping-worker-paychecks.html https://www.cnbc.com/2019/10/07/that-50-year-low-in-unemploy...