This paper examines unemployment and inflation data from the U.S. Bureau of Labor Statistics during the 2008–2009 recession. It reviews the Consumer Price Index as a measure of inflation, analyzes the sharp rise in nonfarm payroll job losses and long-term unemployment figures, and discusses the macroeconomic policy responses undertaken by the federal government. The paper connects rising unemployment and inflation to the rationale behind the economic stimulus package, including public works hiring, industry bailouts, and middle-class tax cuts rooted in Keynesian economic theory.
According to the "Labor Force Statistics from the Current Population Survey" on the U.S. Bureau of Labor Statistics website, the unemployment rate stood at 8.5% in March 2009. Persons are classified as unemployed if they do not have a job, have actively looked for work in the prior four weeks, and are currently available for work. Persons who were not working and were waiting to be recalled to a job from which they had been temporarily laid off were also included in the ranks of the unemployed (Unemployment, 2009, U.S. Bureau of Labor Statistics).
The Consumer Price Index (CPI), one commonly used measure to determine the rate of inflation and how it affects ordinary consumers, increased +0.2 during the same period. The CPI measures "the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services," allowing for a modest range of substitutions within that basket (CPI FAQ, 2009, U.S. Bureau of Labor Statistics). These goods span everything from food, to rent, to personal hygiene products, to transportation, to entertainment. The CPI reflects spending patterns for two population groups: all urban consumers and urban wage earners and clerical workers (CPI FAQ, 2009, U.S. Bureau of Labor Statistics).
Of course, this basket is not perfectly representative of all Americans, but it is used as a leading economic indicator of pricing and examines how changes in prices affect people's day-to-day lives. When inflation is going up, people's weekly paychecks can buy relatively fewer goods. Higher unemployment combined with higher inflation is obviously a particularly difficult situation, given that people are earning less money on the whole while paying more for basic necessities.
A recent Economic News Release from the Bureau of Labor Statistics, titled "Employment Situation Summary," revealed that nonfarm payroll employment continued to decline sharply in March. The unemployment rate rose from 8.1 to 8.5 percent. Since the recession began in December 2007, 5.1 million jobs had been lost, with almost two-thirds (3.3 million) of the decrease occurring in the last five months, across all major industry sectors.
There is also a troubling pervasiveness to the extent of the downturn: the number of long-term unemployed — those jobless for 27 weeks or more — rose to 3.2 million over the month and had increased by approximately 1.9 million since the start of the recession in December 2007. The rate of involuntary part-time workers also climbed by 423,000 to 9.0 million. This underemployment rate may reflect workplaces that cut worker hours rather than initially resorting to layoffs as a way to deal with a downturn in demand.
"Keynesian stimulus rationale and job creation"
"Tax cuts and industry bailouts to stimulate spending"
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