EconDebates - Employment, Unemployment, and Inflation

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EconDebates Online keeps you informed on today's most crucial economics policy debates. Each EconDebate, created by John Kane (SUNY-Oswego), provides a primer on the issues and links to background information and current, in-depth commentaries from experts around the world. Review the brief introductions and, for EconDebates of interest, select the full debate.

Employment, Unemployment, and Inflation

Title

Introduction

Is a budget deficit harmful to the economy?

Full Debate

In the late 1990s, discussion of U.S. fiscal policy often focused on how the budget surplus should be used. The recession of 2001 (and the subsequent "jobless recovery"), the Bush Administration's tax cuts, and rising military and homeland security expenditures have converted the the budget surplus into a large and growing federal budget deficit. The economic effects of this deficit have been the focus of a substantial amount of public policy debate.

Is a "jobless recovery" a necessary part of the "new economy?"

Full Debate
For most of the 20th century, the end of a recession was signaled by rising output and falling unemployment rates. The end of the 1990-1991 recession, however, was accompanied by moderate output growth, but a slower than usual decline in the unemployment rate. The term "jobless recovery" was created during this period to describe this phenomenon. The end of the 2001 recession was initially accompanied by a rising unemployment rate despite a slow to moderate rate of output growth, leading to the resurgence of debate over the reasons for a "jobless recovery."

Does an Increase in the Minimum Wage Result in a Higher Unemployment Rate?

Full Debate
Minimum wage laws in the U.S. were first introduced during the 1930s in response to the Great Depression. This period was characterized by falling output, falling prices, and falling employment. The National Industrial Recovery Act (NIRA) of 1933 attempted to stop this downward spiral by encouraging the formation of trade association agreements that established price floors and minimum wages. This was the first national attempt to introduce minimum wages in major industries. Those firms that participated in the trade association agreements were able to display a "blue eagle" logo in their establishments. In 1935, the U.S. Supreme Court ruled that the NIRA was unconstitutional, and these initial minimum wage agreements were terminated.

Should the Strategic Petroleum Reserve be used to Reduce Fluctuations in Oil Prices?

Full Debate
The Strategic Petroleum Reserve (SPR) was created as a result of the Energy Policy and Conservation Act in December 1975 in response to the 1973-74 oil embargo. This Act allowed the U.S. to store up to 1 billion barrels of petroleum in salt caverns located near the Gulf of Mexico. Oil has been added to these salt caverns from June 1977 to the present. The SPR now holds over 500 million barrels of crude oil.

Is There A New Economy?
Full Debate
The rate of growth of productivity in the U.S. economy remained relatively low in the 1980s and early 1990s. Real wages fell in many industries during this period. Many economists argued that structural changes in the economy had resulted in a natural rate of unemployment that was over five percent. The late 1990s, however, provided a very different economic situation in which a more rapid rate of productivity growth resulted in higher real wages throughout the economy. This increase in productivity growth was accompanied by relatively low inflation and a rather substantial decline in the unemployment rate (reaching a low of 3.9% in April 2000). This change has been so dramatic that many have argued that the U.S. now has a "new economy" in which the old rules no longer apply. It is generally argued that this "new economy" is the result of the growth of the internet and an expansion of global competition.

Do technological advances result in higher unemployment?

Full Debate
Technological advances allow society to produce more output from the existing mix of resources. These advances may take the form of less costly methods of producing existing output or may result in the production of new (or substantially improved) commodities (such as DVD players, HDTV, anti-lock braking systems, and similar innovations). Society clearly gains from the production of either more output or more highly valued output. But, how do these technological advances affect employment?

Should the Federal Reserve aim at a zero inflation policy?

Full Debate
Virtually all economists agree that high inflation rates are disruptive. Economies experiencing double-digit inflation rates tend to have lower growth rates than economies experiencing lower rates of inflation. This is due, in large part, to the increased uncertainty about future income and prices that accompanies higher inflation rates. Thus, most economists agree that inflation rates should be relatively low. There is much less consensus about whether an inflation rate of 0% is better or worse than an inflation rate of 3%.

Should the Fed pursue a fixed policy rule?

Full Debate
Until the Great Depression, most economists argued that the government should provide a stable economic infrastructure, but should not engage in attempts to stabilize the economy. Classical economic models suggested that the economy was self-equilibrating and tended to move toward a full-employment equilibrium relatively rapidly. These models suggested that there was no need for governments to engage in activist fiscal or monetary policies. The experience of the Great Depression, however, caused many economists to re-evaluate these models and policy recommendations.

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Employment, Unemployment, and Inflation
Title	Introduction
Is a budget deficit harmful to the economy? Full Debate	In the late 1990s, discussion of U.S. fiscal policy often focused on how the budget surplus should be used. The recession of 2001 (and the subsequent "jobless recovery"), the Bush Administration's tax cuts, and rising military and homeland security expenditures have converted the the budget surplus into a large and growing federal budget deficit. The economic effects of this deficit have been the focus of a substantial amount of public policy debate.
Is a "jobless recovery" a necessary part of the "new economy?" Full Debate	For most of the 20th century, the end of a recession was signaled by rising output and falling unemployment rates. The end of the 1990-1991 recession, however, was accompanied by moderate output growth, but a slower than usual decline in the unemployment rate. The term "jobless recovery" was created during this period to describe this phenomenon. The end of the 2001 recession was initially accompanied by a rising unemployment rate despite a slow to moderate rate of output growth, leading to the resurgence of debate over the reasons for a "jobless recovery."
Does an Increase in the Minimum Wage Result in a Higher Unemployment Rate? Full Debate	Minimum wage laws in the U.S. were first introduced during the 1930s in response to the Great Depression. This period was characterized by falling output, falling prices, and falling employment. The National Industrial Recovery Act (NIRA) of 1933 attempted to stop this downward spiral by encouraging the formation of trade association agreements that established price floors and minimum wages. This was the first national attempt to introduce minimum wages in major industries. Those firms that participated in the trade association agreements were able to display a "blue eagle" logo in their establishments. In 1935, the U.S. Supreme Court ruled that the NIRA was unconstitutional, and these initial minimum wage agreements were terminated.
Should the Strategic Petroleum Reserve be used to Reduce Fluctuations in Oil Prices? Full Debate	The Strategic Petroleum Reserve (SPR) was created as a result of the Energy Policy and Conservation Act in December 1975 in response to the 1973-74 oil embargo. This Act allowed the U.S. to store up to 1 billion barrels of petroleum in salt caverns located near the Gulf of Mexico. Oil has been added to these salt caverns from June 1977 to the present. The SPR now holds over 500 million barrels of crude oil.
Is There A New Economy? Full Debate	The rate of growth of productivity in the U.S. economy remained relatively low in the 1980s and early 1990s. Real wages fell in many industries during this period. Many economists argued that structural changes in the economy had resulted in a natural rate of unemployment that was over five percent. The late 1990s, however, provided a very different economic situation in which a more rapid rate of productivity growth resulted in higher real wages throughout the economy. This increase in productivity growth was accompanied by relatively low inflation and a rather substantial decline in the unemployment rate (reaching a low of 3.9% in April 2000). This change has been so dramatic that many have argued that the U.S. now has a "new economy" in which the old rules no longer apply. It is generally argued that this "new economy" is the result of the growth of the internet and an expansion of global competition.
Do technological advances result in higher unemployment? Full Debate	Technological advances allow society to produce more output from the existing mix of resources. These advances may take the form of less costly methods of producing existing output or may result in the production of new (or substantially improved) commodities (such as DVD players, HDTV, anti-lock braking systems, and similar innovations). Society clearly gains from the production of either more output or more highly valued output. But, how do these technological advances affect employment?
Should the Federal Reserve aim at a zero inflation policy? Full Debate	Virtually all economists agree that high inflation rates are disruptive. Economies experiencing double-digit inflation rates tend to have lower growth rates than economies experiencing lower rates of inflation. This is due, in large part, to the increased uncertainty about future income and prices that accompanies higher inflation rates. Thus, most economists agree that inflation rates should be relatively low. There is much less consensus about whether an inflation rate of 0% is better or worse than an inflation rate of 3%.
Should the Fed pursue a fixed policy rule? Full Debate	Until the Great Depression, most economists argued that the government should provide a stable economic infrastructure, but should not engage in attempts to stabilize the economy. Classical economic models suggested that the economy was self-equilibrating and tended to move toward a full-employment equilibrium relatively rapidly. These models suggested that there was no need for governments to engage in activist fiscal or monetary policies. The experience of the Great Depression, however, caused many economists to re-evaluate these models and policy recommendations.