The implicit trade-off between more jobs and higher prices is represented by the non-accelerating inflationary rate of Unemployment (NAIRU).   Sometimes called the "natural rate of employment" the NAIRU is the estimate of the lowest unemployment rate that can be achieved without spurring inflation.  This rate hovers around 6% (its 5.5% right now).  So one way to look at our policy priorities (and here I follow the lead of Jared Bernstein) is to take note of the movement of the real unemployment rate around the NAIRU line.  We never want to be above the NAIRU line, as this means that too many people are out work and productive potential is being squandered.  And dipping below the line is only a problem if inflation results: as we can see from the graph below, this is rarely the case.  And, in recent years (or decades) we have spent much more time above the NAIRU line than below it.



As importantly, the NAIRU is just an estimate, and the evidence is pretty strong that--as a policy target--it could be much lower. As Dean Baker and Jared Bernstein argue (HERE and HERE), recent experience suggests that an unemployment rate as low as 4 percent (last seen during the boom of the late 1990s) runs little risk of spurring inflation--while at the same time promise to delivering substantial benefits, including higher wages (especially for those towards the bottom of the earnings distribution), and healthier fiscal returns.  The famous "Phillips Curve" which plots the relationship between inflation and unemployment has flattened in recent business cycles, meaning that even if pushing the jobless rate below 5 or 4 percent did spur inflation, the cost of approaching full employment would still be dwarfed by the benefits.

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