Unemployment Rate During Clinton Administration

The purpose of this paper is to analyze the changes in the unemployment rate during the term of President Clinton who concludes his second term in office in the year 2000. This analysis will consist of the following parts: a) factors affecting unemployment rate; (b) relationship of inflation to job growth; and (c) impact of minimum wage on unemployment.

There are numerous factors affecting the job market in the United States: size and education of the work force, technology that replaces workers, industry changes and so on. The major econometric model that is used to determine how jobs are created in the marketplace consists of the following assumptions:

A. To finance growth (and therefore create more jobs) the business needs a healthy economy with low inflation, low taxes, and little regulatory interference.

B. If A occurs, then the business will be able to create new jobs for more workers.

C. The only way B will occur is if there is a trained and skilled workforce available.

D. The only was C will occur is to finance training for that portion of the work force that does not have sufficient skills to take the jobs in B.

The creation of jobs focuses on the interplay and the relationship between all of these assumptions. However, all of these factors can be classified in three broad areas -- labor- market conditions, inflation expectations and supply shock

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of this model do not hold up today. How can it be that the economy simultaneously experiences both the lowest inflation rate and the lowest unemployment rate for the first time in decades? Does this imply that the models are not working? An even deeper question is whether or not the concept of economic models in and of themselves have outlived their usefulness? A Harvard economics professor is certain that today's situation is a logical extension of the fact that the Federal Reserve always faces a tradeoff between inflation and unemployment: The answer is that while the Fed always faces an inflation-unemployment tradeoff, the tradeoff does not stay the same from year to year. Consider an analogy. As a consumer, you face a tradeoff between spending and saving. The more you spend, the less you save. Of course, if your income rises, you can both spend more and save more. And if your income falls, you might choose to both spend less and save less. But this in no way denies the tradeoff between spending and saving that you face every day (Mankiw, 1997, 36). Relationship Between Unemployment Rates and the Minimum Wage One of the most curious situations that economics modelers face is the relationship between the Minimum Wag

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