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Barack's burden

Sunil Jain | January 29, 2009 09:53 IST

While the jury's still out on whether US President Barack Obama's proposed stimulus is the right way to help fix the economy, rising unemployment is something that's likely to trouble the President for many years to come.

US unemployment rates are around 6.7 per cent currently and are forecast to rise to around 8.2 per cent by June.

According to Okun's law, cited in one of the latest research notes put out by JPMorgan Chase Bank, a real GDP growth of 1 per cent leads to reduction in unemployment by around 0.4 per cent.

So, if the unemployment rate is around 8 per cent, it will take 12 quarters of 4.2 per cent growth to get the unemployment rate back to 6 per cent - for unemployment levels to reach that level in 8 quarters, a GDP growth of 5 per cent is required.

No one, of course, is talking of growth rates anywhere near this for several years in the US. In other words, for much of his first term, President Obama is likely to be plagued with high unemployment numbers.


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