Getting to 6.5% Unemployment Will Require Faster Growth
Last week, the Federal Reserve declared that one of its goals is to lower unemployment to 6.5%. Michael Greenstone and Adam Looney of the Brookings Institution’s Hamilton Project estimate how long it will take to get there from our current rate of 7.7%.
As you can see in the chart above, if the economy creates 220,000 new jobs per month, based on the Bureau of Labor Statistics (BLS) household average from November 2011 to November 2012, it will be the first half of 2015 until 6.5% is reached.
Change the rate of job creation, and you end up with quite different results. Assume only 150,000 jobs per month are created--2012’s pace according to the BLS’ employer survey. We wouldn’t reach 6.5% until 2018. However, if the economy grows faster and job creation hits 300,000 per month, then the Federal Reserve’s target would be reached by early in 2014.
We can speed up the economy in a few ways:
- Encouraging domestic energy production.
- Reducing regulatory burdens.
- Enacting comprehensive tax reform.
- Expanding trade and tourism.
- Investing in infrastructure.
- Encouraging innovation.
Yet as economists at the San Francisco Federal Reserve point out, even if the economy grows faster we could see a situation where more jobs are being created but the unemployment rate also rises because millions of frustrated people who left the labor force would return looking for work.
The important number is 12 million. That's how many people were unemployed as of November 2012. To make a significant dent in that number, we need to increase economic growth.