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description: "This course presents a matching model of unemployment and uses it to study unemployment fluctuations, efficient unemployment, and labor market policies."
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summary: "This course presents a matching model of unemployment. It uses the model to study unemployment fluctuations; job rationing; efficient unemployment and unemployment gap; and labor market policies such as minimum wage, public employment, and unemployment insurance."
description: "This paper argues that in the United States the full-employment rate of unemployment is the geometric average of the unemployment and vacancy rates."
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description: "This paper argues that in the United States the full-employment rate of unemployment (FERU) is the geometric average of the unemployment and vacancy rates."
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summary: "This paper argues that in the United States the full-employment rate of unemployment (FERU) is the geometric average of the unemployment and vacancy rates. Between 1930 and 2024, the FERU averages 4.1% and is very stable."
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image: "/13s.png"
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##### Abstract
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This paper computes the unemployment rate $u^\ast$ that is consistent with full employment in the United States. First, the paper argues that social efficiency is the most appropriate economic interpretation of the legal concept of full employment. Here efficiency means minimizing the nonproductive use of labor---both unemployment and recruiting. As it takes one worker to service one job vacancy, the nonproductive use of labor is measured by the number of jobseekers and job vacancies, $u + v$. Through the Beveridge curve, the numbers of jobseekers and vacancies are inversely related, $uv =$ constant. With such symmetry the labor market is efficient when there are as many jobseekers as vacancies ($u = v$), inefficiently tight when there are more vacancies than jobseekers ($v > u$), and inefficiently slack when there are more jobseekers than vacancies ($u > v$). Accordingly, the full-employment rate of unemployment (FERU) is the geometric average of the unemployment and vacancy rates: $u^\ast = \sqrt{uv}$. From 1930 to 2024, the FERU averages 4.1% and is stable, remaining between 2.5% and 6.7%. Unemployment has generally been above the FERU ($u > u^\ast$), especially during recessions. Unemployment has only been below the FERU ($u < u^\ast$) during major wars, as well as shortly before and in the aftermath of the pandemic.
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This paper computes the unemployment rate $u^\ast$ that is consistent with full employment in the United States. First, the paper argues that social efficiency is the most appropriate economic interpretation of the legal concept of full employment. Here efficiency means minimizing the nonproductive use of labor—both unemployment and recruiting. As it takes one worker to service one job vacancy, the nonproductive use of labor is measured by the number of job seekers and job vacancies, $u + v$. Through the Beveridge curve, the numbers of job seekers and vacancies are inversely related, $uv =$ constant. With such symmetry the labor market is efficient when there are as many job seekers as vacancies ($u = v$), inefficiently tight when there are more vacancies than job seekers ($v > u$), and inefficiently slack when there are more job seekers than vacancies ($u > v$). Accordingly, the full-employment rate of unemployment (FERU) is the geometric average of the unemployment and vacancy rates: $u^\ast = \sqrt{uv}$. From 1930 to 2024, the FERU averages 4.1 percent and is stable, remaining between 2.5 percent and 6.7 percent. Unemployment has generally been above the FERU ($u > u^\ast$), especially during recessions. Unemployment has only been below the FERU ($u < u^\ast$) during major wars, as well as shortly before and in the aftermath of the pandemic.
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##### Figure 11: Unemployment rate, vacancy rate, and FERU in the United States, 1930–2024
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##### Figure 12: Labor-market tightness in the United States, 1930–2024
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##### Figure 12: Labormarket tightness in the United States, 1930–2024
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+[Presentation slides](/13p.pdf)
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+[Nontechnical summary for the Brookings Institution](https://www.brookings.edu/articles/u-√uv-the-full-employment-rate-of-unemployment-in-the-united-states/)
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+[Podcast with Louise Sheiner from the Brookings Institution](https://www.brookings.edu/articles/what-is-the-efficient-rate-of-unemployment/)
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+[Panel discussion on labor-market slack at the Federal Reserve Bank of New York](/13ps.pdf)
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+[Podcast with Louise Sheiner from the Brookings Institution](https://www.brookings.edu/articles/what-is-the-efficient-rate-of-unemployment/)
description: "This paper develops a model of unemployment fluctuations in which the labor and product markets have a matching structure. Published in QJE, 2015."
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summary: "This paper develops a model of unemployment fluctuations. The innovation is to represent the labor and product markets with a matching structure. The model simultaneously features Keynesian unemployment, classical unemployment, and frictional unemployment."
description: "This paper studies how the generosity of unemployment insurance should vary over the business cycle in the United States. Published in AEJ Policy, 2018."
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summary: "This paper explores how the optimal generosity of unemployment insurance varies over the business cycle in the United States. It finds that the optimal replacement rate is countercyclical, just like the actual replacement rate."
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