A Hoosier Economist Parses Unemployment by Maryann O. Keating,
Ph.D. Without identifying the cause, we know when we are ill and
hurting. Obviously, it is not advisable to experiment with a
variety of remedies to determine which one works. Similarly, in
economics, we know that an unemployment rate exceeding eight
percent is too high. And even though the situation is desperate
for those unemployed, randomly selected policy initiatives are
not a solution. The unemployment rate may be parsed into various
components. About three to four percent of unemployment in a
free society is considered “normal.” New entrants to the labor
force, those between jobs and the seasonally unemployed account
for this normal unemployment. The actual percentage of normal
unemployment varies depending on the amount of time individuals
and employers on average allocate to searching for new jobs or
new employees. Even if we generously accept four-percent
unemployment as normal, we must account for current residual
unemployment. A cyclica