Microeconomics Assignment: USA Full Employment After Recession

This assignment analyzes the USA's success in achieving full employment after the 2009 global economic recession, focusing on the relationship between actual and natural unemployment rates. It defines full employment as the state where actual unemployment equals the natural rate, examining the conditions and factors influencing the natural rate, such as frictional unemployment and the non-accelerating inflation rate of unemployment (NAIRU). The analysis uses data from the Federal Reserve Bank of St. Louis and the Bureau of Labor Statistics to assess whether the USA economy operated above or below full employment in 2007 and 2012. The paper also discusses the impact of the recession on the natural rate of unemployment, the influence of economic policies like the Patient Protection and Affordable Care Act and the Dodd-Frank reform bill, and the role of factors such as skill mismatches, unemployment benefits, and economic uncertainty. The assignment references an article by Daly et al. to explain the increase in the natural rate of unemployment during and after the financial crisis. The conclusion emphasizes the challenges in measuring full employment and the importance of aligning labor skills with production technology and maintaining a stable economic environment.

Running head: MICROECONOMICS
Microeconomics
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Author Note

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Introduction
The objective of the paper is to analyze whether the USA economy has been successful in
achieving the full employment even after the several years of the global economic recession in
2009. As per the economic theory, the country will be able to achieve the full employment rate if
actual unemployment is as same as the natural rate. The natural unemployment rate is referred as
the equilibrium unemployment rate. Underlying this rate is considered as a frictional
unemployment. There are some certain conditions for the natural unemployment revolves around
the general time lag behind searching for a suitable job for the employees. Nonetheless, the rate
can be compared with the non-accelerating inflation rate.
Discussion
According to the economists, full employment occurs when all available labors including
the skilled and unskilled workers are employed in the most efficient way. Full employment is an
ideal situation when every willing worker is able get engaged in the workforce making the
unemployment zero. The economy is stated to be in full employment condition if actual
unemployment gets equal to the natural rate of unemployment. It seems like a hypothetical
objective for economic policymakers. Actual unemployment rate is the sum of natural rate and
cyclical rate, whereas, natural rate of unemployment is referred as the equilibrium condition of
the resource and labor market (Blanchard, 2018). Meanwhile, economy will be operating below
the full employment condition if natural unemployment rate is less than the actual
unemployment rate. In this case, real GDP is below its potential level. In the context of the USA
economy, recession has been reported to influence the natural rate of unemployment during
global recession, period from 2007 to 2009. Because of post- recession, the USA policymakers

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has estimated the natural unemployment rate at 5%. An unexpected sharp fall in the labor
participation rate from the young generation has been considered as the cause of this estimated
natural unemployment condition. The high enrollment to the higher school is marked as a
principal cause for 5% level of natural unemployment rate. However, the data reveals that natural
unemployment rate gets accelerated to 5.5% in 2012. This significant development in the natural
unemployment rate reflect the long-term impact of the global recession. During recession,
workers are not interested to leave the jobs as there are less job opportunities. After recession,
the economy enters the boom when the economy approaches several job opportunities to the
available workers. In this phase, many willing labors want to leave the jobs due to alternative job
options leading and it intensifies the frictional unemployment condition. Therefore, the
improvement of the natural rate of unemployment in 2012 can be considered as an outcome of
the increased frictional unemployment number. In terms of the Bureau of Labor Statistics, the
actual unemployment rate is registered at 4.6% in 2007 and 8.1% in 2012. This reflects that the
USA economy has worked above its full employment condition in 2007 as actual unemployment
rate (4.6%) is below the natural unemployment rate (Fred.stlouisfed.org, 2020). On the contrary,
the economy in 2012 has worked above its full employment level as actual unemployment rate
(8.1%) is greater than the natural unemployment level (5.5%).
Referring to article, the persistence recession and overwhelming financial crisis have
compelled the federal government to bring changes in the formulation of the financial policies,
such as, the Patient Protection and Affordable Care and the Dodd-Frank reform bill (Furlanetto
& Groshenny, 2016). The growing uncertainty related to the unrest condition of the international
financial market has inevitably deteriorated the aggregate demand for the labors (Daly et al.,
2012). During recession, the economic growth has observed a sharp decline due to lackluster

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economic performance. However, the USA economy has been approaching towards stable and
consistent growth except the employment sector. Mismatch between skill requirements and job
openings, the ample availability of unemployment benefits and uncertain economic condition are
labeled as the major concerns for the growing natural rate of unemployment (Manning &
Petrongolo, 2017). As per the neoclassical theory, natural unemployment rate gets determined by
efficiency of the labor with respect to the production technology. In this regard, cyclical
unemployment is not counted under the natural unemployment (Mukoyama, Patterson & Şahin,
2018). The neoclassical economists consider that labor market operates under the flexible wage
rate.
Conclusion
It is difficult to measure whether the USA economy has achieved that goal of full
employment with respect to the labor market and inflation target. Federal Reserve generally sets
the inflation target to maintain a stable growth in total productivity coupled with low level of
unemployment rate. The extended effect of the unemployment is not only limited to the
workforce also associated with the lackluster structural development. The gap between the
aspiring job seekers and employment opportunity will be possibly mitigated if labor can make
them accustomed with the new production system.

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Reference list
Blanchard, O. (2018). Should we reject the natural rate hypothesis?. Journal of Economic
Perspectives, 32(1), 97-120.
Daly, M., Hobijn, B., Şahin, A., & Valletta, R. (2012). A Search and Matching Approach to
Labor Markets: Did the Natural Rate of Unemployment Rise?. Journal Of Economic
Perspectives, 26(3), 3-26. doi: 10.1257/jep.26.3.3
Fred.stlouisfed.org. (2020). Natural Rate of Unemployment (Short-Term).
https://fred.stlouisfed.org/series/NROUST [Accessed 1 Mar. 2020].
Furlanetto, F., & Groshenny, N. (2016). Mismatch shocks and unemployment during the Great
Recession. Journal of Applied Econometrics, 31(7), 1197-1214.
Manning, A., & Petrongolo, B. (2017). How local are labor markets? Evidence from a spatial job
search model. American Economic Review, 107(10), 2877-2907.
Mukoyama, T., Patterson, C., & Şahin, A. (2018). Job search behavior over the business
cycle. American Economic Journal: Macroeconomics, 10(1), 190-215.