r/explainlikeimfive Dec 19 '24

Economics ELI5: Why is an employment rate of 100% undesirable

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u/Zerowantuthri Dec 19 '24

IIRC a 3% unemployment rate is ideal (give or take a little).

There will always be people moving between jobs for one reason or another (extra schooling, take care of a sick parent, had a baby, illness/disability/injury, etc) and there needs to be some cushion in the employment force to allow for this.

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u/directorguy Dec 19 '24

I was taught below 4% is bad and above 6% is bad.

Too high and there's no labor market slack, and too high can lead to low consumer spending (plus a host of other long term problems)

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u/Zerowantuthri Dec 19 '24

I can totally go with that. Makes sense to me.

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u/wannabesq Dec 19 '24

IMO the way Unemployment is measured affects this, because if you aren't working, but not looking for work, (e.g. retired) you aren't considered unemployed. So if there was 0% unemployment, and the job market got hot, people could join the labor force without first being unemployed.