Earlier this week, the Nebraska Department of Labor announced in December Nebraska had thelowest unemployment rate in the nation at a historic 1.7%. While low unemployment is objectively good, how low is too low and what are some consequences of such historic lows?
Dr. Eric Thompson is a professor of economics at the University of Nebraska-Lincoln and says a good analogy for unemployment is body fat. Too much or too little and there can be consequences. He pegs Nebraska’s “natural” unemployment rate at about 2.5%.
“That's the rate where people are primarily unemployed, while they're searching for a new job,” Thompson said. “So it's not a situation like they're out there, and there's no jobs for them, and they're waiting for the jobs to come back.”
Thompson says with an unemployment rate below the natural rate like Nebraska’s, it means employers are usually desperate for workers and so more willing to compromise on worker demands. He says this played out during the Great Resignation of 2021.
“It could be the situation right now, where it's not just asking for more in your current occupation, but maybe this is the time when you could get that job you always dreamed you would get.”
But there are also consequences to such low unemployment. Thompson says while many large employers are positioned to bear the costs of workers’ demands, smaller businesses may not be able to keep pace.
“And sometimes people do close businesses and report that the labor shortage was part of the reason why,” Thompson said.
He adds some businesses may also shrink their business to accommodate or be provoked into a financially costly business move.