Low Unemployment and Low Inflation

Two of the central macroeconomic objectives are keeping unemployment low and prices stable. Both are measured carefully, and both have several distinct causes.

Measuring unemployment

The unemployed are people of working age who are willing and able to work and actively seeking a job but cannot find one. The unemployment rate is:

$$\text{Unemployment rate} = \frac{\text{Number unemployed}}{\text{Labor force}} \times 100$$

where the labor force is the employed plus the unemployed. This headline figure hides problems. It ignores discouraged workers who have given up searching and so leave the labor force, understating true joblessness. It also ignores underemployment, where part-time workers want full-time hours. Unemployment is also distributed unevenly across regions, age groups, and ethnic