Equilibrium unemployment

From ACT Wiki
Jump to: navigation, search

Economics.

Where there is an excess of people looking for work over those who are prepared to take the work.


The economic impacts of Covid-19 to date
"Downturns also may hit potential GDP through adverse effects on equilibrium rates of unemployment and/or workforce participation.
In the long run, the equilibrium jobless rate (ie the rate consistent with meeting the inflation target over time) is determined by structural factors, eg tax and benefit system, skills mismatch, demographics, labour market flexibility.
In the shorter term, cyclical factors can have an impact as well. For example, when unemployment is high, the workplace skills of those out of work might deteriorate, while new entrants to the workforce never acquire them. People who have been unemployed for a long period (eg over six months, over a year) tend to be less likely to find work than those unemployed for a short period...
... episodes of persistent high unemployment seem to become embedded for a period in a higher equilibrium jobless rate. Moreover, when unemployment is high and job openings are scarce, discouraged job-seekers tend to become less engaged with the workforce such that participation falls, especially among younger and older age groups. A lengthy period of high unemployment would tend to exacerbate these adverse effects on equilibrium unemployment and participation, as well as leading to increased social deprivation."
Michael Saunders, External Member of the Bank of England's Monetary Policy Committee, May 2020.


See also