How did economists surmise that 5% is the inevitable level of unemployment in the U.S.?

Question

How did economists surmise that 5% is the inevitable level of unemployment in the U.S.?

Answer 1

Prior to the mid 70's it was assumed that the there was no inevitable level and the relationship between unemployment and inflation was described by the Philips curve. but when  we had both high inflation and high unemployment, the Philips curve failed. To patch the problem economists added an additional  variable, the natural rate of unemployment, which  is the rate below which a sufficient labor shortage occurs to cause wages to increase. Since the fed started fighting inflation as it primary objective, average wages have  only increased with the cost of living, and the unemployment was about 2 or 3 percent higher than in the 50's and 60's. In the late 90's the economy boomed, the unemployment rate fell below 5% without inflation and the natural rate was said to have decreased  to near the levels prior 1970. All this is a long way of saying that the natural rate of unemployment is a parameter with no fixed value and is determined empirically for the period of time one is trying to fit.  Here is a link with some graphs of estimates of what the natural rate has been since WWII.

http://economistsview.typepad.com/econom...

Answer 2

It's pretty historical as an average after WW II.

In Spring and Summer, college students & grads, high school students and grads, looking for work, usually increase the numbers.

Answer 3

Well, they track the unemployment rate (the people who are able to apply and collect unemployment benefits through the state).  They then track it for a period of time... say a year or 6 months.  From there, the watch what the inflation or deflation rate for employment is based on thoes figgures.  The people who can not/do not collect unemployment are in in the tally so it is a bit off... however that is more or less how they calculate it.

Answer 4

lots of historical data.