Why is 0% unemployment bad - NYS Department of Labor economist friend explained this to me
So I was talking to my friend who works as an economist and I asked her why 0% unemployment would be bad since that sounds like everyone has jobs. She explained that it actually creates problems for the economy and I thought I'd share what she told me since it relates to how NYS Department of Labor tracks these numbers. Basically when unemployment gets too low (like under 3%), it means there's no flexibility in the job market. Workers can't move between jobs to find better opportunities, employers can't find qualified people to hire, and wages start inflating really fast. She said NYS Department of Labor aims for around 4-5% unemployment because that represents people who are between jobs by choice or temporarily displaced. It's called 'natural unemployment' and it's actually healthy for the economy. Made me think differently about unemployment statistics when I see them in the news.
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Donna Cline
This is actually correct economic theory. The Federal Reserve and state agencies like NYS Department of Labor consider 4-6% unemployment to be 'full employment' because it allows for what economists call frictional unemployment - people transitioning between jobs voluntarily. When unemployment drops below 3%, you start seeing wage-price spirals and labor shortages that can destabilize the economy.
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Harper Collins
•that's wild, I never thought about it that way. so basically some unemployment is good for everyone?
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Kelsey Hawkins
interesting but try telling that to someone who's been filing weekly claims with NYS Department of Labor for months lol. I get the theory but when you're struggling to pay rent it doesn't feel like you're contributing to economic health
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Lucas Parker
•Oh absolutely, I didn't mean to minimize how hard unemployment is on individuals! The theory is more about aggregate economic health, not personal situations. Hope your claim situation improves soon.
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Dylan Fisher
I think there's also the factor that some people choose to be temporarily unemployed while they look for better opportunities or retrain for new careers. If everyone was forced into jobs immediately there'd be no time for skills development or finding good matches between workers and employers.
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Edwards Hugo
•exactly! plus it gives employers incentive to treat workers better when they know people have other options
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Gianna Scott
This reminds me of what happened during the pandemic when unemployment spiked but then dropped really fast in some areas. Employers were offering crazy signing bonuses because they couldn't find workers anywhere. Restaurants were closing early, construction projects got delayed. Even though unemployment was low, it created other problems.
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Alfredo Lugo
Makes sense from a macro perspective but honestly the NYS Department of Labor system seems designed like they WANT some people to stay unemployed longer with all the bureaucracy and delays...
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Donna Cline
•The administrative challenges are separate from the economic theory though. Ideally the system would process claims efficiently while still maintaining the natural job market flexibility.
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