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The current labor market in the United States was not supposed to be possible.
It was not so long ago, economists had generally agreed that an unemployment rate of 3.6% could not exist without also seeing the rate of creation. jobs slow down (where will new workers come from with so few unemployed, after all?) and have a surge in inflation (a shortage of workers should mean that employers raise wages, is not do not you?
And yet, that's what happened, with April's employment figures putting an exclamation mark on the trend. The unemployment rate fell to its lowest level in five decades. Employers also added 263,000 jobs; job creation estimates from previous months have been revised upward; and average hourly earnings continued to rise at a steady rate – up 3.2% from the previous year.
Compare this reality with the projections published by the Federal Reserve just three years ago. In mid-2016, Fed officials estimated that the long-term unemployment rate would be about 4.8% and that this would coincide with inflation of 2%.
If that were the unemployment rate today, 1.9 million Americans would not be employed but would instead have a paid job. And despite this ultra-low unemployment rate, inflation is only 1.6% in the last year, which is below the level sought by the Fed.
Because we are in 2019 and everything is immediately resorbed in a partisan war, these good results are immediately seized by Trump's supporters who see the good news as a consequence of the president's policy and by opponents who credit the vote. the already improving economy that President Obama delivered in January 2017.
There is truth in both. The labor market had already improved since President Trump took office for years. Since then, his performance has been more a continuation of the trend than a sudden recovery.
After more than two years of Trump administration, warnings that a trade war and an erratic management style would distract the economy have proven to be wrong, and tax cuts and deregulation are probably one of the reasons for the strong growth recorded in 2018. early 2019 (although most forecasts are planning a slowdown over the next few quarters, the impact of tax cuts easing).
In particular, it now appears that fears of recession that appeared late 2018 were wrong, especially when the Fed canceled its rate increase campaign in early 2019.
But beyond credit or blame, there is a greater lesson to be learned from the remarkably strong performance of the labor market: the limits of knowledge when it comes to something as complex as US economy $ 20 trillion.
Recent years have clearly shown that the The Phillips curve – the relationship between unemployment and inflation – has changed shape or has become irrelevant.
The break in the old guidelines suggests that policymakers should avoid over-reliance on them and remain generous in the face of the full range of economic opportunities. Using data from a few decades of the mid-twentieth century to define 21st century politics may not be a good idea.
The results of recent years lead us to wonder whether we have been too pessimistic about the strength of the US economy, without inflation or other negative effects.
There are early signs that the tight labor market could contribute, or at least coincide, with an increase in worker productivity, which, if sustained, would lead to higher wages and living standards over time. It also reinforces the argument that the Fed and other policymakers should let expansion expand rather than try to curb it.
It is difficult to define an economic policy. To make decisions, you need to create a forecast, and that's why these forecasts tend to be based on historical experience.
But the last 20 years have been a difficult time for the global economy, with all kinds of forces that have transformed the fundamentals: globalization, demographic changes, technological change and so much more.
The continued explosion of the US labor market suggests that policymakers need to be very open-minded when old relationships and rules of thumb no longer apply.
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