C h a p t e r

MONITORING JOBS

5 AND INFLATION**

The Big Picture

Where we have been:
Chapter 5 finishes introducing macroeconomic issues and describing how key
macroeconomic variables are measured. The link developed in this chapter
between employment and real GDP is an important concept that helps serve
as a foundation for the presentation of the aggregate production function in
the next chapter. Perhaps more significantly, the explanation of the natural
rate of unemployment and its relationship to potential GDP are important
building blocks for the AS-AD model developed in Chapter 10 and the Phillips
curve framework developed in Chapter 12. These topics also recur in Chapters
13 and 14 when fiscal and monetary policy is covered.

Where we have been:

This chapter increases students’ understanding of the types and sources of
unemployment. It also provides students with detail on the use of the CPI to
measure inflation. Alternative price measures also are introduced.

N e w i n t h e Tw e l f t h E d i t i o n
The content in Chapter 5 is substantially the same as in the 11th edition. The
multiple graphs and data in this chapter have all been updated through 2014. The
current event topic, which can be found in the ‘Economics in the News’ section,
discusses improvements in unemployment along with labor force participation in
the United States for 2014. The Worked Problem describes 5 people’s labor-
market situation and then asks how the BLS would classify each person and what
happens to the labor force, unemployment rate, and labor force participation rate
if the people’s situation changes. To include the new Worked Problem without
lengthening the chapter, some problems have been removed from the Study Plan
Problem and Applications. These problems are in the MyEconLab and are called
Extra Problems.
Lecture Notes
Monitoring Jobs and Inflation
 The unemployment rate, the employment-to-population ratio, and the labor force
participation rate are key labor market indicators.
 The natural unemployment rate is the unemployment rate at full employment; it is
comprised of frictional and structural unemployment.
 The unemployment rate fluctuates over the business cycle.
 The price level and the inflation rate are measured using the CPI as well as other
price indexes.
I. Employment and Unemployment
Current Population Survey
 The U.S. Census Bureau measures the population, labor force, and amount of
employment. The working-age population is the total number of people aged 16
years and over who are not in jail, a hospital, or some other form of institutional
care. The labor force is the sum of the employed and the unemployed.
 Unemployment occurs when someone who wants a job cannot find one. To be
counted as unemployed, a person must be available for work and must be in one of
three categories:
 Without work but has made specific efforts to find a job within the previous four
weeks
 Waiting to be called back to a job from which he or she has been laid off
 Waiting to start a new job within 30 days

Ask the students, “If I was to assign a homework assignment of estimating the
unemployment rate in your city, how would you do it?” You will probably get an answer of
“Google it,” but tell them that this is not an Internet mining project! Try to have some of
your students suggest an in-person survey or a phone survey. Now you can walk through
some of the issues economists face with data collection (questions to ask, sample size,
bias, etc.). Discuss how a grocery store may be a decent place to get a random sample of
people from all demographics and how a phone survey might miss some poor,
unemployed person without a phone or students who do not have a land-based phone.

Three Labor Market Indicators

 The unemployment rate is the percentage of the people in the labor force who are
Number of people unemployed
unemployed. It equals ´ 100 and Labor force =
Labor force
Number of people employed + Number of people unemployed. Between 1980 and
2014 the unemployment rate averaged 6.5 percent.
 The employment-to-population ratio is the percentage of people of working age
Number of people employed
who have jobs. It equals ´ 100. In recent years the
Working-age population
employment-to-population ratio has been about 62 percent. It has fallen since 2000
and in June 2014 was 59 percent.
 The labor force participation rate is the percentage of working-age population
Labor force
who are members of the labor force. It equals ´ 100.
Working-age population
The labor force participation rate has been declining since it reached about 67
percent in 2000 and in June 2014 was 62.9 percent.
 MONITORING JOBS AND INFLATION 47

Jobs and home production. It is interesting to ask students to think about appropriate
measures of labor force participation over long periods of time or in very different
economic arrangements. The technical definition involves spending time working for gain,
or seeking work for gain. In the United States, this usually equates to work outside the
home. Ask students whether women who are unpaid family workers on farms are in or out
of the labor force; and then ask whether they are if they don’t work outside the home, but
cook, make and wash clothing, and otherwise maintain the household for a family.

 Marginally attached workers are people who are available and willing to work but
currently are neither working nor looking for work. These workers often temporarily
leave the labor force during a recession and decrease the labor force participation
rate. Because they are no longer counted as unemployed, marginally attached
workers lower the unemployment rate. A discouraged worker is a marginally
attached worker who has stopped looking for work because of repeated failures to
find a job.
 Economic part-time workers are people who are working part-time but would like to
find full time work. These workers are not unemployed by the U-3 standard but are
considered “part-unemployed.”
 Marginally attached workers (and discouraged workers) as well as economic part-
time workers who want a full-time job are not counted as unemployed in the official
unemployment rate.
Real World Examples from the Class: Ask the class if anyone has an example of a
‘discouraged worker’ or someone who has taken a part-time job even though he or she
wants a full-time job. It would be unusual if no one had a story to tell.

Alternative Measures of Unemployment

The BLS creates several alternative measures of unemployment to take account of the
long-term unemployed (who lose the most from unemployment) and marginally
attached workers:
 U–1: includes only those unemployed for 15 weeks as unemployed.
 U–2: includes only job losers as unemployed.
 U–3: the official unemployment rate.
 U–4: adds discouraged workers to the official unemployment rate.
 U–5: adds all marginally attached workers to the official unemployment rate.
 U–6: adds part-time workers who want full-time jobs to the U-5 unemployment rate.
 Long-term unemployment (U–1) and unemployed job losers (U–2) are about 40
percent of the unemployed on average but 60 percent in a deep recession.
 Adding discouraged workers (U–4) makes very little difference to the
unemployment rate, but adding all marginally attached workers (U–5) adds
about one percentage point.
 A really big difference is made by adding the economic part-time workers (U–6).
In June 2014, adding these workers to the U-5 unemployed increased the
underemployed rate to 12 percent.
II. Unemployment and Full Employment
Types of Unemployment
 Frictional unemployment is the unemployment that arises from normal labor
turnover. These workers are searching for jobs. The unemployment related to this
search process is a permanent phenomenon in a dynamic, growing economy.
Frictional unemployment increases when more people enter the labor market or
when unemployment compensation payments increase.
48 CHAPTER 5

 Structural unemployment is the unemployment that arises when changes in

technology or international competition change the skills needed to perform jobs or
change the locations of jobs. Sometimes there is a mismatch between skills
demanded by firms and skills provided by workers, especially when there are great
technological changes in an industry. Structural unemployment generally lasts
longer than frictional unemployment. Minimum wages and efficiency wages create
structural unemployment.
 Cyclical unemployment is the fluctuating unemployment over the business cycle.
Cyclical unemployment increases during a recession and decreases during an
expansion.
Identifying frictional, structural, and cyclical unemployment. Ask your class if
anyone they know has been laid off. Then discuss whether losing a job creates frictional,
structural, or cyclical unemployment. Look at your local examples. If you live in a steel-
producing or car manufacturing area, for example, you can talk about local structural
unemployment arising from the closing of factories due to international competition. For
cyclical unemployment, ask students how they think the business cycle and cyclical
unemployment is related to full-time enrollments at higher education institutions. Students
often don’t think there is any relationship. But nationally during a recession, the growth
rate of full-time enrollments increases. Ask students if they can explain this relationship.
The answer is that during a recession and due to the increase in cyclical unemployment,
the opportunity cost of school decreases. This is a great way to keep students thinking
about marginal benefits and costs.

Work through each type of employment asking whether it is good or bad for society (call to
their attention that it is usually bad for the individual, but may be good long term for
society)
 Frictional? Good because a healthy, dynamic, economy needs new entrants
to the labor force , such ascollege graduates, and freedom for people to quit
a job they don’t like.
 Structural? Good because a healthy, growing economy has technological
change that makes some jobs obsolete.
 Cyclical? Bad because it is unfortunate to have unemployment strictly
because of the cyclical nature of the economy. If it were possible to maintain
the same level of economic growth with less fluctuation, we would have less
cyclical unemployment with a higher level of welfare. Can and should the
cycle be managed? This is a big question in Macroeconomics that we will
continue to tackle!

“Natural” Unemployment
 Natural unemployment is the unemployment that arises from frictions and structural
change when there is no cyclical unemployment—when all the unemployment is
frictional and structural. Natural unemployment as a percentage of the labor force is
called the natural unemployment rate.
 Full employment is defined as a situation in which the unemployment rate equals
the natural unemployment rate.
What Determines the Natural Unemployment Rate?
 The Age Distribution of the Population An economy with a young population has a
large number of new job seekers every year and has a high level of frictional
unemployment.
 The Scale of Structural Change The scale of structural change is sometimes small
but sometimes there is a technological upheaval. When the pace and volume of
 MONITORING JOBS AND INFLATION 49

technological change and when the change driven by international competition

increase, natural unemployment rises.
 The Real Wage Rate The natural unemployment rate increases if minimum wage is
raised to exceed the equilibrium wage rate or if more firms use an efficiency wage (a
wage set above the equilibrium real wage to enable the firm to attract the most
productive workers and motivate them to work hard and discourage them from
quitting).
 Unemployment Benefits Unemployment benefits increase the natural
unemployment rate by lowering the opportunity cost of job search.
There are two controversies that surround the natural unemployment rate. The first is the
use of the term “natural,” which offends many who believe any unemployment is always a
bad thing. From the perspective of an unemployed individual who has yet to find the job
he or she wants, unemployment is bad. However, there is some level of unemployment
that is good for society because it will help create more productive matches between firms
and workers and allow for technological changes that lead to economic growth. The
second controversy is what level of unemployment corresponds to the natural rate.
Because this number is unobserved, it must be estimated. Some estimates imply the
natural rate is stable and changes only slowly over time. Others imply that most of the
fluctuations in unemployment are “natural”. These differences are important for
macroeconomic policy because one of the typical goals of policy is to keep the
unemployment rate from making wide swings around the natural rate.

Real GDP and Unemployment Over the Cycle

 When the economy is at full employment, the unemployment rate equals the natural
unemployment rate and real GDP equals potential GDP. When the unemployment
rate is greater than the natural unemployment rate, real GDP is less than potential
GDP. And when the unemployment rate is less than the natural unemployment rate,
real GDP is greater than potential GDP. The gap between real GDP and potential GDP
is called the output gap.
Students often have an innate sense of an asymmetry in business cycle fluctuations
around potential GDP. In particular, students often think that the economy is almost always
below potential GDP. It is important for students to understand that it is possible for the
economy to temporarily rise above potential GDP so that the unemployment rate is less
than natural unemployment rate. One (small) example of this state of affairs occurred in
Silicon Valley in the late 1990s when workers who became dissatisfied with a job could quit
and be assured of a new job (often at higher pay!) within a few days. Indeed, firms paid for
expensive radio advertisements “begging” for workers to apply for jobs.

III. The Price Level, Inflation, and Deflation

The price level is the average level of prices. The average level of prices can be rising,
falling, or stable. Inflation occurs when the price level persistently rises; deflation occurs
when the price level persistently falls. The inflation rate is the percentage change in the
price level.
Why Inflation and Deflation are Problems
 Unexpected inflation or deflation is a problem for society because they redistribute
income and wealth. Unexpected inflation benefits workers and borrowers;
unexpected deflation benefits employers and lenders. They motivate people to
divert resources from producing goods and services to forecasting and protecting
themselves from the inflation or deflation.
 Unexpected deflation hurts businesses and households that are in debt (borrowers)
who in turn cut their spending. A fall in total spending brings a recession and rising
unemployment.
 Hyperinflation is an inflation rate of 50 percent a month or higher
50 CHAPTER 5

The Consumer Price Index

 The Consumer Price Index (CPI) is a measure of the average of the prices paid by
urban consumer for a fixed “basket” of consumer goods and services. The CPI is
calculated monthly by the Bureau of Labor Statistics.
 The CPI is defined to equal 100 for a period called the reference base period. The
current reference base period is 1982-1984, so the average CPI during that period
was 100.
 In June 2014, the CPI was 237.7. Thus, since 1982-84, prices increased by 137.7
percent.

In June 2008, the CPI was 218.8 so the economy experienced deflation between June 2008
and June 2009. Deflation is very uncommon but it does occur.

Constructing the CPI

 The BLS conducts an infrequent survey of consumers to determine the average
“basket” of goods and services purchased by urban household. Then each month
the BLS records the prices of goods and services in the basket, keeping the
representative items as similar as possible in consecutive months. The BLS uses the
fixed basket quantities and the recorded
prices to determine the cost of the basket Cost
each month. The CPI for the month equals Item Quantit Pric (dollars)
100 multiplied by the ratio of the cost in the y e
current month to the cost in the base Book 2 $30 $60
period. s
 For example, suppose the initial survey Coffe 20 $2 $40
shows that the CPI basket is 2 books and 20 coffees. The initial base period prices
and quantities are in the table to the right. In this base period, say 2005, the cost of
the CPI basket is $100.
 Next suppose that the BLS survey taken one month in 2015 reveals that the price of
a book is $35 and the price of a coffee is $3. These 2015 prices and the initial base
period quantities are in the table to the Cost
right. In this period the cost of the CPI Item Quantit Pric (dollars)
basket is $130. y e
 Using these data, the CPI equals ($130  Book 2 $35 $70
$100)  100, or 130. So between the base s
period and the current period, the CPI has Coffe 20 $3 $60
risen by 30 percent.
Measuring the Inflation Rate
 The inflation rate is the percentage change in the price level from one year to the
next. In a formula,
æCPI this year - CPI last year ö
Inflation rate = ç ÷´ 100.
è CPI last year ø
 In June 2014, the CPI was 237.7. In June 2013, the CPI was 232.9. Using the formula,
between 2013 and 2014, the inflation rate was 2.1%.
The Biased CPI
 The CPI has four biases that lead it to overstate the inflation rate. The biases are:
 New Goods Bias: New goods are often more expensive than the goods they
replace.
 Quality Change Bias: Sometimes price increases reflect quality improvements
(safer cars, improved health care) and should not be counted as part of inflation.
 Commodity Substitution Bias: Consumers substitute away from goods and
services with large relative price increases.
 MONITORING JOBS AND INFLATION 51

 Outlet Substitution Bias: When prices rise, people use discount stores more
frequently and convenience stores less frequently.
The Magnitude and Consequences of the Bias
 The Boskin Commission in 1996 estimated the bias overstates the inflation rate by
about 1.1 percentage points a year.
 Any bias in the CPI matters because many contracts and payments are indexed to
the CPI, including Social Security. Close to 1/3 of government outlays are linked to
the CPI.
In terms of government outlays linked to the CPI, such as Social Security, a bias of 1
percent amounts to close to a trillion dollars in additional expenditures over a decade.
Politically, it is hard to adjust social security payments for the bias, so the current plan is
reduce the measurement bias in the CPI, for instance by revising the basket more
frequently to reflect new goods and substitution changes. In 2010, President Obama
proposed a two year wage freeze on all federal employees. Their pay is traditionally linked
to the CPI and this freeze was estimated to save the federal government $2 billion dollars!
Alternative Price Indexes
 Three alternative to the CPI are:
 Chained CPI: The chained CPI is calculated similarly to chained GDP (discussed in
the Mathematical Note to the previous chapter.) The chained CPI incorporates
both new goods and the substitution of one good for another and so overcomes
these sources of bias. But the difference between the chained CPI and regular
CPI is small: on average, since 2000 the chained CPI is 0.7 percentage points
lower per year.
 Personal Consumption Expenditure Deflator (PCE deflator): The deflator from
nominal and real consumption expenditure. The PCE deflator equals
Nominal consumption expenditure
´ 100. The basket of goods in the PCE
Real consumption expenditure
deflator is broader than the basket in the CPI because it includes all consumption
expenditure.
 GDP Deflator: Similar to the PCE deflator, the GDP deflator is from nominal and
Nominal GDP
real GDP. The GDP deflator equals ´ 100. The difference
Real GDP
between the GDP deflator and regular CPI is small: on average, since 2000 the
GDP deflator is 0.4 percentage points lower per year.
Core CPI Inflation
 The inflation rate is often volatile. To strip out the volatile elements and focus on the
underlying trend inflation, the core inflation rate is used. The core inflation rate is
the CPI inflation rate excluding volatile elements. The core CPI inflation rate equals
the percentage change in the CPI excluding food and fuel prices.
Real Variables in Macroeconomics
 Real variables are measured in constant prices and can be considered to be
measured in units of “goods and services.” In general nominal variables, such as the
nominal wage rate and nominal GDP, are deflated to become real variables using
Nominal variable
the formula real variable = ´ 100. The exception to this rule
Price level
is the nominal interest rate. (In two chapters the students see that the real interest
rate = nominal interest rate  inflation rate.)
52 CHAPTER 5

The Economics in the News discusses “Job Growth in the Recovery.” It shows how the
unemployment rate has fallen but there has been little change in the labor force
participation rate.
 MONITORING JOBS AND INFLATION 53

Additional Problems
1. Michigan: Unemployment Record Holder
Michigan now holds a dubious record: It leads the U.S. in joblessness. The
state’s unemployment rate was 8.5% in May while the U.S. unemployment
rate was only 5.5%. The reason is clear: Detroit’s emphasis on big trucks and
sport-utility vehicles has turned sour. But even though the official
unemployment numbers look awful, the reality is worse. The official number
does not reflect those who have given up looking for a job.
Business Week, June 24, 2008
In 2010, at 13.6 percent of the state’s labor force, Michigan had the nation’s
highest official unemployment rate. But in 2012, Michigan’s unemployment
rate fell to 9 percent, a larger fall than that in the United States as a whole.
Around 11,000 businesses in Michigan produce high-tech scientific instruments
and components for defense equipment, energy plants, and medical
equipment.
a. Why was the reality of the unemployment problem in Michigan actually
worse than the 8.5 percent unemployment rate statistic in 2008?
b. Was this higher unemployment rate in Michigan frictional, structural, or
cyclical? Explain.
c. What factor led to the favorable 2012 employment results in Michigan
compared to the U.S. average? Was this a frictional, structural or cyclical
factor? Explain.
2. The Great Inflation Bias
In 1996 the Boskin Commission was established to determine the accuracy of
the CPI. The commission concluded that the CPI overstated inflation by 1.1%.
The commission described four biases in the way the CPI was determined.
Fortune, April 3, 2008
a. What are the main sources of bias that are generally believed to make the
CPI overstate the inflation rate? By how much did Boskin estimate the CPI
overstates the inflation rate?
b. Do the substitutions among different kinds of meat make the CPI biased up
or down?
c. Why does it matter if the CPI overstates or understates the rate of inflation?

Solutions to Additional Problems

1. a. The unemployment problem is worse than the 8.5 percent unemployment rate
indicates for three reasons. First, the unemployment rate does not include
marginally attached workers, such as discouraged workers. Second, the
unemployment rate does not include part-time workers would want full-time jobs.
Finally the unemployment rate counts only workers who are currently unemployed.
If a company has announced that it will be laying off workers in the future, its
workers are measured as employed even though they will shortly join the ranks of
the unemployed.
b. The higher unemployment rate in Michigan is structural. Consumers are decreasing
the number of U.S.-made large cars in favor of foreign-made smaller cars. And to the
extent that consumers are buying U.S.-made cars, they are generally smaller cars,
many of which are not manufactured in Michigan. So the skills possessed by
54 CHAPTER 5

Michigan workers are not the skills needed for jobs and the location of workers in
Michigan is not the location of available jobs.
c. The improved labor statistics for Michigan reflected a structural factor in that
industries with goods in high demand were able to move to Michigan and use
retrained skilled workers for their production.
2. a. The Boskin Commission presented four reasons why the CPI overstates the inflation
rate. The four sources of bias are the new goods bias (new goods often cost more
than the good they replace); quality change bias (price hikes might reflect quality
changes); commodity change bias (changes in relative price lead consumers to
switch away from goods and services whose price has risen more rapidly than other
goods and services); and, outlet substitution bias (people buy from lower-priced
sources when prices rise). The Boskin Commission estimated that the CPI overstates
the inflation rate by 1.1 percentage points.
b. Substitutions among different types of meat biases the CPI upward because the CPI
ignores these substitutions. For instance, if the price of beef rises and the price of
chicken does not change, then consumers respond by switching from beef to
chicken. Consumers will eat (approximately) the same amount of protein as before
but the substitution of chicken for beef means that their expenditure on protein will
not change by the full amount of the price rise for beef. The CPI ignores this
substitution and assumes that people buy the same amount of beef as before.
Therefore the CPI erroneously reports that expenditure on protein has risen by the
full amount of the price hike of beef. The article says that when consumers respond
to a change in relative price by switching from one type of meat to another, the
price of the new type can’t be compared to the price of the old type because
consumers prefer the old type of meat to the new one. However the article’s
statement can’t be literally true because consumers generally cannot think the
second type of meat ranks at zero compared to the first type of meat. Hence
allowing for no substitution biases the CPI upward because consumers will substitute
from one meat to another when relative prices change.
c. Many decisions depend on the CPI and any errors in the CPI will lead to errors in
these decisions. For instance, some wage contracts are linked to the CPI. If the CPI
overstates inflation, then the firms pay too much and some workers might lose their
jobs if the firm decides to fire them. Conversely if the CPI understates inflation, then
workers are paid too little. Additionally the government links about a third of its
expenditures, including Social Security payments, to the CPI, If the CPI overstates
inflation, then government outlays rise more rapidly than justified whereas if the CPI
understates inflation, then outlays do not rise enough to offset the true inflation
rate.

Additional Discussion Questions

1. Should discouraged workers be counted as part of the unemployment
rate? By definition, discouraged workers should not be counted as “officially”
unemployed because they are not searching for employment. However, the
real issue is whether the definition is appropriate. On the one hand, these
people have given up looking for a job because they cannot find one. On the
other hand, because these people have given up looking for a job they are
quite unlikely to find one. Discouraged workers are different from other
unemployed workers because discouraged workers are unlikely to find work
since they have stopped search. All in all, it is probably better that
discouraged workers not be counted directly with other unemployed workers
 MONITORING JOBS AND INFLATION 55

because their low likelihood of finding work makes them fundamentally

different than other unemployed workers.
2. What harm is there in calling a part-time worker that wants full-time
work unemployed? Unlike discouraged workers or marginally attached
workers, these people are employed. Interpretation of these statistics needs to
be mindful that people may have a distorted view of what they want versus
what they will do. The U-3 standard is based on their current situation and
gives us actual knowledge of the current state of employment. The U-6
measure, which includes these part-time workers, might have more
uncertainty in its level. Nonetheless, it is helpful to see how all of the various
alternative measures compare and useful data can be obtained from all of
them.
3. “Unemployment is bad for the unemployed individual and bad for the
nation. Hence the government should force the unemployment rate to
0 percent.” Comment on this assertion, discussing both its feasibility
and its desirability. The assertion is highly unfeasible. The laws necessary to
drive the unemployment rate to 0 percent would be draconian. For instance,
no college student would be allowed to graduate until he or she had a job
lined up. Once employed, workers would be forbidden to change jobs unless
they had another job already arranged. Furthermore consumers would be
forbidden to change their consumption baskets because if enough people
changed, a firm might go bankrupt…allowing its workers to become
unemployed. The assertion is similarly undesirable. Some unemployment is
productive for the individual because it allows the worker to leave one job
from which he or she is dissatisfied, to look for another job that will be a better
match for the worker’s talents and skills.
4. How can the unemployment rate be less than the natural rate? The
unemployment rate can be less than the natural unemployment rate when the
cyclical unemployment rate is negative. This outcome can occur when the
economy is in a strong expansion. When the economy is growing rapidly,
unemployed workers find jobs quickly. In many instances the match between
worker and job will be poor: The firm is eager to find a worker and the worker
accepts the offered job to end his or her spell of unemployment. But then as
time passes the match is discovered to be poor—the worker does not perform
well and/or dislikes the job. This situation is bad for the business and bad for
the worker.
5. How do you think the business cycle affects the duration of
unemployment? On the average, unemployment has a longer duration in
recessions and a shorter duration in expansions.
6. Why is a change in the age structure of the population, increasing the
proportions of young or old workers in the labor force, likely to
change the natural unemployment rate? When the proportion of young
workers increases, the natural unemployment rate rises because young
workers change jobs more frequently than experienced workers. As these
young workers change their jobs, frictional unemployment and, therefore,
natural unemployment rise. Older workers are less prone to change jobs
because they have had more time to find a good job match. The frictional
unemployment rate is lower and so, too, is the natural unemployment rate
when the proportion of old workers in the labor force is higher.
7. What is the natural unemployment rate? What is the controversy
concerning its measurement? The natural unemployment rate is the
unemployment rate when the economy is at full employment. The natural rate
56 CHAPTER 5

is comprised of frictional and structural unemployment. One controversy

arises because it is difficult to measure frictional and structural
unemployment. Another controversy arises because the issue of whether
discouraged workers and marginally attached workers should be included in
the natural rate is unclear. While the number of these workers can be
measured with reasonable accuracy, whether they should be included in the
natural rate is controversial.