u* = √uv / Pascal Michaillat, Emmanuel Saez.

Format:

Book

Author/Creator:

Michaillat, Pascal.

Contributor:

National Bureau of Economic Research.

Saez, Emmanuel.

Series:

Working Paper Series (National Bureau of Economic Research) no. w30211.

NBER working paper series no. w30211

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2022.

Summary:

Most governments are mandated to maintain their economies at full employment. We propose that the best marker of full employment is the efficient unemployment rate, u*. We define u* as the unemployment rate that minimizes the nonproductive use of labor--both jobseeking and recruiting. The nonproductive use of labor is well measured by the number of jobseekers and vacancies, u + v. Through the Beveridge curve, the number of vacancies is inversely related to the number of jobseekers. With such symmetry, the labor market is efficient when there are as many jobseekers as vacancies (u = v), too tight when there are more vacancies than jobseekers (v > u), and too slack when there are more jobseekers than vacancies (u > v). Accordingly, the efficient unemployment rate is the geometric average of the unemployment and vacancy rates: u* = √uv. We compute u* for the United States between 1930 and 2022. We find for instance that the US labor market has been over full employment (u < u*) since May 2021.

Notes:

Print version record

July 2022.