Unemployment Policy

Abstract

The U.S. unemployment rate was certainly too high in 1975, and most economists would agree that it is too high today. It will also be agreed that this observation poses a problem for public policy (in a sense that the observation that winters in Chicago are “too cold” does not). But what exactly is meant by the statement that unemployment is “too high,” and what is the nature of the policy problem it poses? This question can be answered in more than one way, and the answer one chooses matters great deal.

American Economic Review, Vol. 68, No. 2 (May 1978), pp. 353–70.

University of Chicago. I am very grateful for criticism of an earlier draft by Jacob Frenkel, Sherwin Rusen, and Jose Scheinkman.