The unemployment rate and its dynamics

Full employment by no means implies 100% employment of the entire number of adult able-bodied population. There is a level of unemployment that is considered justified, or normal.

The unemployment rate is represented as a percentage of the unemployed able-bodied population, which does not include pensioners, students, prisoners, and citizens under 16 years of age, to the labor force, including those employed in military service. With full employment, the unemployment rate is equal to the levels of frictional unemployment and the structural one in the sum, i.e. The natural level of unemployment, which is a complex of structural and frictional unemployment, while the unemployment rate is closely related to the stability of the economy, when the level of expected inflation corresponds to the actual level, and when the actual national product is at a natural level.

The dynamics of the unemployment rate, its changes are obtained by comparing unemployment rates in different years. The dynamics of the unemployment rate directly correlates with the dynamics of GNP. A 2% increase in the actual GNP can reduce the unemployment rate by 1% and, conversely, the unemployment rate will increase by about 1% as a result of a 2% decrease in the actual GNP. Therefore, unemployment is a natural state of the labor market, but it is allowed to fluctuate from the natural rate.

Production capacity in cyclical unemployment is not used in full and the GDP value, respectively, is less than that which would have been at full employment.

Between the rupture of GDP and cyclical unemployment A. Oaken empirically discovered a direct, stable relationship. The Oaken law shows the relationship between the shortfall in GDP and the unemployment rate.

The levels of unemployment and employment are important macroeconomic indicators that determine the effectiveness of economic policies pursued by the state. State regulation is carried out by a set of legislative, economic, administrative and organizational measures that are aimed at achieving production efficiency through full employment. To increase the level of employment, the state regulates the labor market and employment. Along with direct impact on the labor market, the state uses indirect methods, including monetary, taxation and depreciation policies.

Statistics show that there is an inverse relationship between employment and inflation, in other words, this relationship extends to the general level of prices and unemployment. It is worth noting that inflation is inflation of prices, in other words - a decline in the purchasing power of a monetary unit, its depreciation. Price growth is observed if the rate of increase in money supply in circulation is higher than GDP growth . The reduction in GDP accelerates the increase in the money supply. Inflation, in turn, has a negative impact on wages. A.U. Phillips revealed a pattern between the share of the unemployed and the change in nominal wages. A.U. Phillips, examining the correlation between inflation and unemployment, found that there is an inverse relationship between the amount of unemployment and the rate of price growth. Its graphic image was called the Phillips curve. According to the Phillips curve, unemployment is high with insignificant inflation, and as inflation increases, it decreases. Based on the Phillips curve, it is assumed that it is possible to reduce unemployment in an inflationary environment or increase the unemployment rate by suppressing price increases. However, in the real economy, the results of this curve are not always reflected.

The general level of prices and unemployment is studied in:
A) micro and macroeconomics;
B) normative and positive economic theory.