Thursday, May 19, 2016

In the '60s, they thought four percent.

One of those times when I blurted a number from memory instead of checking it first. The 4% number in the title of this post, stated in yesterday's remarks: Four percent unemployment is 'Full Employment'. Now I'm checking it.

I thought I got it from an old Statistical Abstract, from the '70s.

Took a while to find it. I knew I looked at it before. Found a file on the old computer, a file from 2009.

But no. That was Potential GDP growth. Four percent annual growth. That would look like the red line here:

We're generally a little shy of that.

Grubbed around some more then, and ended up looking in my old Econ textbook (McConnell, Economics, sixth edition, 1975). Found the quote (page 194) that maybe put the 4% number in my head:
There is disagreement here. Some economists look back to the unemployment figures of the prosperous period from 1966 to 1969 and argue that unavoidable unemployment is only about 3.5 percent. Others contend that certain groups, such as those composed of women and young workers who traditionally have quite high unemployment rates, are becoming more important in the labor force. Therefore, the unavoidable minimum of unemployment should be revised upward to 4.5 or even 5 percent. We will settle for the 4 percent figure, recognizing that it is open to question.

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