The Council of Economic Advisers' View of the Full-Employment Unemployment Rate: 1962-1998

Abstract

The paper discusses how various Council of Economic Advisers (CEA)have viewed the "maximum employment" provision of the 1946 Employment Act. In 1962 Kennedy's CEA interpreted maximum employment to be 4 percent unemployment - a target chosen within the context of a Keynesian Phillips curve analysis. Later CEAs revised the numerical target and identified maximum employment with the natural rate of unemployment. The most commonly accepted reason to adjust estimates of the natural rate was a changing demographic composition - particularly of different age, education and sex groups - of the labor force. CEAs also recommended ways to reduce the natural rate.