Why the Falling U.S. Unemployment Rate Matters

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Why the Falling U.S. Unemployment Rate Matters

For the Empirical Paper Assignment, the unemployment data was chosen in order to investigate it in general, as well as its importance for the US economy, in particular. The paper will be looking at the correlation of rise and drop of civil unemployment rate with GDP (gross domestic product). Harvard Business Review’s article “Why the Falling U.S. Unemployment Rate Matters” and The Washington Post’s “U.S. GDP grows at 3.5 percent in third quarter” will be used and talked about in the assignment.

When measuring economic growth and overall performance of the country’s economy, two data entries are used the most: civil unemployment rate and GDP (gross domestic product). Unemployment data shows the state of the job market and correlates with the amount of citizens receiving unemployment benefits. High unemployment hurts the economy in many ways; it puts a strain on the national budget due to the benefits that have to be paid, and it means that the society in general has less disposable income. It, in turn, has negative effects on retail and other businesses, sometimes meaning that further payroll cuts become inevitable. Gross Domestic Product is an economic data released yearly, in some cases quarterly, which represents the country’s economic performance. Declining GDP means that production, personal income, and trade are going down; rising GDP i a good sign of a recovering economy.

HBR’s (Harvard Business Review) article compares the previous unemployment estimates with the latest data released. In the previous article, HBR estimated unemployment to fall to 5% by July 2015; however, the estimation was met with skeptical comments due to the bleakness of economic expectations.  The latest official report stated unemployment to be at 5.8%;  first time it dropped below 6% mark since financial breakdown of 2008. After that, the author of the article discusses the effects the falling unemployment has on the economy of the country, and why it matters for the country recovering from recession. The author also discusses the issues of methodology of calculating the unemployment rate, and how it is affecting the way this data is perceived. In addition, the stock market volatility is discussed, as well as the wage deflation.

The second article was chosen with the purpose of comparing GDP growth with the unemployment rate decline. It showcases the 3.5% increase in GDP during the last quarter and how it might be misleading in terms of real economic growth. However, it also tells how the US economy might be stabilizing and “shifting into high gear”.

I agree with the HBR’s article, and the data shown above proves their point. We can see a huge rise of unemployment in 2008,, as well as a significant drop in GDP. Over only a few quarters, the number of unemployed has doubled from around 5% to 10%, and it was followed by a GDP decline of over 400 billion dollars. This proves how vital the employment rate is for economy of the country, and how it can affect microeconomic, as well as macroeconomic, state of the society. It also shows that as soon as those levels started dropping again, GDP started rising. Even though the country has not fully recovered from the recession and the economic decline, this data proves the point of both articles, which is to highlight the fact that it is on a good track. According to the author, the bottom line is that unemployment is falling faster than expected, and by mid-2015 it should recover to the 2007 levels. The Washington Post article also quotes the Fed’s words, which are representative of the current economic situation: “There has been a substantial improvement in the outlook for the labor market”.

The articles point out the concept that all of the economic activities are intertwined and depend on each other. GDP growth or decline correlates with the unemployment rate, which has a direct effect on consumer confidence and their disposable income. Country’s microeconomic and macroeconomic health depends on this data, so in order to have a clear knowledge of the future, the unemployment issues and GDP data cannot be looked past.

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