US unemployment rate will hover around 10 percent in 2010 and 2011 - CBO

US unemployment rate in 2010, 2011 and 2012

Testifying before the Joint Economic Committee in Congress about policies to increase economic growth and employment, Douglas W. Elmendorf, Director of the Congressional Budget Office, said that the unemployment rate will average slightly above 10% in the first half of this year and fall below 8% only in 2012.

US unemployment rate in 2014

The CBO expects the economy to near its long-run sustainable level of unemployment to reach 5% only in 2014.

"As a result, more of the pain of unemployment from this downturn lies ahead of us than behind us," added Elmendorf.

The CBO believes that policy actions, if properly designed, would promote economic growth and increase employment in 2010 and 2011. However, despite the potential economic benefits in the short run, such actions would add to the already large projected budget deficits.

The CBO Director warms that unless actions are taken to reduce the government debt, future incomes would tend to be lower than they otherwise would have been, if Congress does enact policies that would add to the debt.

The CBO states that since different policies have quite different effects on output and employment per dollar of lost tax revenue or additional government spending, the policies should be choses with this in mind.

CBOs recommended policy actions

The largest effects on output and employment in 2010 and 2011 per dollar would be those that could be implemented relatively quickly or targeted toward people whose consumption tends to be restricted by their income—for example, reducing payroll taxes for firms that increase payroll or boosting aid to the unemployed.