Why is 7% considered full employment?
The Great Man asks.
To which the answer is, it isn\’t.
His background is that Mark Carney says the BoE won\’t raise interest rates until unemployment is below 7%. He thus makes the leap to thinking that Carney is claiming that 7% is full employment. Which isn\’t what is being claimed at all.
Rather, we\’ve currently got a policy regime that is suited to the aftermath of a recession. We\’ve interest rates that are near zero, real interest rates that are negative. This seems a reasonable enough policy stance when we\’ve got grossly excessive unemployment. Exceptional times call for exceptional policy.
When unemployment comes down below 7% again then we can think about returning to more reasonable policy as well. Like, perhaps, raising interest rates so that savers can get some return on their money? Or whatever: the point being that Carney\’s not saying that 7% is full employment, rather that falling below that level would be the end of grossly excessive unemployment.