[OPE] Normalisation of higher unemployment rates

(In previous years, I had argued on OPE-L and RRPE that higher unemployment
would become "normalized". Now Dean Baker agrees - JB).

The 'new normal' of unemployment
Dean Baker
Guardian, Saturday 15 January 2011

(...) The conventional wisdom among economists is that the economy will be
forced to go through a long adjustment process before it can get back to
more normal rates of unemployment. The optimists put the return to normal at
2015, while the pessimists would put the year as 2018, and possibly, even
later. Furthermore, many economists believe that the new normal will be
worse
than the old normal. The unemployment rate bottomed out at 4.5% before the
housing bubble began to burst. If we go back to 2000, the United States had
a year-round average unemployment rate of just 4.0%. The optimists now
envision that normal would be 5.0% unemployment, while the pessimists put
the new normal at 6.0% unemployment and perhaps higher. As a point of
reference, every percentage point rise in the unemployment corresponds to
more than 2 million additional people without jobs. The willingness of
economists to so quickly embrace this darker future is striking.
(...)

http://www.guardian.co.uk/commentisfree/cifamerica/2011/jan/14/economics-economy

I would put the "new normal" at 7 or 8% of the labour force, i.e. one in 12,
or one in 14 workers or so. Real unemployment might be higher still, if more
workers drop out of the labour force, and depending on how exactly we define
the labour force and the employment/unemployment distinction (generally,
"partial unemployment" or "underemployment" has tended to increase, i.e.
workers seek more hours work but can't get them). The result I think is
roughly half the real GDP growth rate and double the unemployment rate in
the developed capitalist economies. The ideology then blames the unemployed
squarely for their own unemployment. Simply put, it takes more unemployed
workers to keep prices stable.

J.

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Received on Sun Jan 23 07:15:23 2011