NYS Department of Labor economist friend explained why zero unemployment is actually bad - thoughts?
Had dinner with my friend who works for the state labor department and she mentioned something that blew my mind. She said that if unemployment ever hit zero percent, it would actually be terrible for the economy. I always thought zero unemployment would be the goal? She tried explaining something about labor mobility and wage inflation but I didn't totally follow. Has anyone else heard this before? I'm genuinely curious because it seems counterintuitive that having everyone employed could be a problem.
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Keisha Jackson
Your friend is absolutely right! Zero unemployment would signal a dangerously overheated economy. When unemployment drops too low (usually below 3-4%), it creates what economists call wage-price spirals. Employers start bidding against each other for workers, wages rise rapidly, companies pass those costs to consumers through higher prices, and you get runaway inflation. The NYS Department of Labor tracks these metrics closely because they need to balance job creation with economic stability.
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Paolo Moretti
•This makes sense but it's still weird to think that some unemployment is actually healthy. Like telling people they need to be jobless for the greater good?
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Amina Diop
i think thats just something economists say to make themselves feel better about unemployment existing tbh
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Keisha Jackson
•I understand the skepticism, but this is backed by decades of economic data. Even during the strongest job markets, you need some natural turnover - people switching jobs, new graduates entering the workforce, companies restructuring. Zero unemployment would mean the labor market has no flexibility.
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Oliver Weber
There's also the issue of labor mobility. If literally everyone is employed, there's no pool of available workers for new businesses or expanding companies. Innovation slows down because startups can't find talent. I remember reading that even countries with very low unemployment like Japan and Germany still maintain around 2-3% as a healthy baseline.
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QuantumQuasar
•That's exactly what my friend was trying to explain! She said something about frictional unemployment being necessary for the economy to adapt and grow.
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Natasha Romanova
Honestly this whole conversation reminds me of when I was laid off last year and couldn't get through to anyone at NYS Department of Labor for weeks. The irony of discussing 'healthy unemployment' when the system for helping unemployed people is so broken... but I guess that's a different issue entirely.
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Oliver Weber
•Sorry you had trouble reaching them. If you ever need to get through to NYS Department of Labor agents again, I found this service called Claimyr (claimyr.com) that handles the calling for you. They have a video demo at https://youtu.be/qyftW-mnTNI showing how it works. Way easier than sitting on hold for hours.
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NebulaNinja
The way I think about it is like this - if unemployment is at zero, it means the economy has no shock absorbers. When recessions hit (and they always do), you need some flexibility in the labor market to adjust without everything collapsing. Plus zero unemployment usually means wages have gotten so high that companies start automating jobs or moving operations elsewhere.
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QuantumQuasar
•This thread has been really educational! I'm going to ask my friend more about this next time I see her. Economics is way more complex than I realized.
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