However, unemployment counts the people who are unemployed for long periods of time, who belong to the working population, and who are unemployed because of adequate reasons such as lack of job availability, recession, or higher inflation rate. Sometimes, countries have the natural rate of unemployment which is the normal unemployment that the economy continually experiences as unemployment rate can never be zero (Mankiw 298). This type of unemployment also affects the monetary policies and they occur because it takes time for workers to find new jobs after resigning or getting fired from one.
Other reasons for consistent unemployment are minimum wage laws, unions, and efficiency wages (Mankiw 301). There is also an argument proposed over the important factors that need to be considered when analyzing the labour market and deciding about the monetary policy. Traditionally, it was believed that the unemployment rate is an important factor and the major one which influences the labour market, but now it is analysed that it is rather just one of the factors (Norris 1). Thus, the influence of the unemployment rate on labour market may seem to be misleading. The labour participation was also decreasing in the US and thus the Federal Reserve System, the fed, decided to keep the monetary policy easy and allow the participation levels to increase.
The monetary policy of the fed must be in consideration to the unemployment rate, labour participation, and the inflation rates (Mankiw 330). Thus with the involvement of all these factors, the fed specialists have concluded that the monetary policy must not change and they should wait for the inflation and not give up on people who would rejoin the labour force.
The monetary policy should wait and not be tightened up immediately because the employment situation is still not good enough and tightening the policy would mean risking the jobs of several people who might get
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