The figure above illustrates Okun’s Law — the relationship between growth and unemployment… The horizontal axis shows annual growth rates of real GDP; the vertical axis shows the year-to-year change in the unemployment rate. Two things are clear. First, the economy has to grow around 2 1/2 percent per year just to keep unemployment from rising. Second, growth above that level leads to a less than one-for-one fall in unemployment (because hours per worker rise, more people enter the work force, etc.). Roughly, it takes two point-years of extra growth to reduce the unemployment rate by one point.
So, suppose that US growth is accelerating. Even so, it will take years of high growth to get us back to anything resembling full employment. Put it this way: suppose that from here on out we average 4.5 percent growth, which is way above any forecast I’ve seen. Even at that rate, unemployment would be close to 8 percent at the end of 2012, and wouldn’t get below 6 percent until midway through Sarah Palin’s first term.
I’d love to bet against Krugman’s computer, but so far I’m batting 0.000 doing that…
Next Release: January 7, 2011 The Employment Situation for December 2010 is scheduled to be released on January 7, 2011, at 8:30 A.M. Eastern Time.
Sorry, the comment form is closed at this time.