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What's a realistic 'normal' unemployment rate?

Job seekers wait in line at the Choice Career Fair held at the Doubletree Hotel in Dallas, Texas.

TEXT OF STORY

Tess Vigeland: New claims for unemployment benefits continue to drop. The four-week moving average is at its lowest level since August of 2008. But the unemployment rate is stubbornly stuck just shy of 10 percent. The Federal Reserve addressed the jobs issue in the minutes from its November meeting. It said unemployment will remain high for at least a few more years.

And what really stood out was that the Fed indicated that the jobless rate may stay between 5 and 6 percent over the long haul. A new -- and higher -- normal. We asked Marketplace's Alisa Roth to explore what that means.


Alisa Roth: Unemployment's been more than 9 percent for a year and a half. Sylvia Allegretto is an economist at the University of California, Berkeley. She says a healthy U.S. economy needs an unemployment rate of 5 percent. To get to that level, she figures the economy has to create 12 million jobs, because we've already lost so many. And there are still new people entering the workforce.

The problem is, we're only creating about 100,000 jobs a month.

Sylvia Allegretto: At the rate we're growing, that certainly is going to be many, many years before we fill in that jobs gap and are able to get on a reasonable unemployment rate.

Still, there's a growing debate over whether a return to 5 percent unemployment is realistic. And the U.S. may have to get used to a 'normal' unemployment rate of 6 percent. But it's hard to predict how long it could take even to get to that level.

The high unemployment rate is already causing problems, like for state and local governments whose tax revenues have dropped and which are having to cut all kinds of services, including benefits for people who are unemployed.

Gary Burtless is an economist at the Brookings Institution. He says it'll reach a point where that will push people back into the work force.

Gary Burtless: Because even a miserable job compared with the last one you held is still one that gives you a better standard of living than we provide through our system of social protection.

The numbers of long-term unemployed suggest people are still choosing unemployment over under-employment. But the Fed's outlook will certainly add pressure -- it thinks unemployment is likely to stay above 9 percent next year and around 8 percent the year after.

I'm Alisa Roth for Marketplace.

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