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By the end of this section, you will be able to:

  • Explain frictional and structural unemployment
  • Assess relationships between the natural rate of employment and potential real GDP, productivity, and public policy
  • Identify recent patterns in the natural rate of employment
  • Propose ways to combat unemployment

Cyclical unemployment explains why unemployment rises during a recession and falls during an economic expansion. But what explains the remaining level of unemployment even in good economic times? Why is the unemployment rate never zero? Even when the U.S. economy is growing strongly, the unemployment rate only rarely dips as low as 4%. Moreover, the discussion earlier in this chapter pointed out that unemployment rates in many European countries like Italy, France, and Germany have often been remarkably high at various times in the last few decades. Why does some level of unemployment persist even when economies are growing strongly? Why are unemployment rates continually higher in certain economies, through good economic years and bad? Economists have a term to describe the remaining level of unemployment that occurs even when the economy is healthy: it is called the natural rate of unemployment    .

The long run: the natural rate of unemployment

The natural rate of unemployment is not “natural” in the sense that water freezes at 32 degrees Fahrenheit or boils at 212 degrees Fahrenheit. It is not a physical and unchanging law of nature. Instead, it is only the “natural” rate because it is the unemployment rate that would result from the combination of economic, social, and political factors that exist at a time—assuming the economy was neither booming nor in recession. These forces include the usual pattern of companies expanding and contracting their workforces in a dynamic economy, social and economic forces that affect the labor market, or public policies that affect either the eagerness of people to work or the willingness of businesses to hire. Let’s discuss these factors in more detail.

Frictional unemployment

In a market economy    , some companies are always going broke for a variety of reasons: old technology; poor management; good management that happened to make bad decisions; shifts in tastes of consumers so that less of the firm’s product is desired; a large customer who went broke; or tough domestic or foreign competitors. Conversely, other companies will be doing very well for just the opposite reasons and looking to hire more employees. In a perfect world, all of those who lost jobs would immediately find new ones. But in the real world, even if the number of job seekers is equal to the number of job vacancies, it takes time to find out about new jobs, to interview and figure out if the new job is a good match, or perhaps to sell a house and buy another in proximity to a new job. The unemployment that occurs in the meantime, as workers move between jobs, is called frictional unemployment    . Frictional unemployment is not inherently a bad thing. It takes time on part of both the employer and the individual to match those looking for employment with the correct job openings. For individuals and companies to be successful and productive, you want people to find the job for which they are best suited, not just the first job offered.

Questions & Answers

how do we calculate the firm's profit maximizing output in the short run given marginal cost ,average cost and average variable costs?
Nomuhle Reply
what is employment?
Ahmarh Reply
what is meant by broadening the tax base?
Fiona Reply
What is scarcity.
Npoanlarb Reply
when there is adequate resources
Fiona
the represent inadequacy of resources relative to the needs of individuals
Moses
scarcity is the unavailability of resources to attain unlimited wants and needs of people
Nzubechukwu
for exam land and money
Ruchi
hi negi
Gul
Scarcity in economics means resources are limited supply or insufficient to satisfy all human wants.
Addai
why our wants are limited
Npoanlarb Reply
nooo want is unlimited but resources are limited
Ruchi
and do to that there occurs scarcity and we have to make choice in order to have what we need if need be I will explain more
Madara
our wants are not limited but rather the resources
Moses
as we know that there are two principle of microeconomics scarcity of resources and they have alternative uses...
Ruchi
yes .....
Mathias
because our resources are limited./we have a limited resources.
Ijeoma
our wants are not limited. because always the desire for something always arises. our means are rather limited and our wants are unlimited
Anthony
because always the desire for...
Addai
what is demand
Thank Reply
demand is something wt we called in economic theory of demand it simply means if price of product is increase then demand of product will decrease
Ruchi
inverse relationship between demand and price
Ruchi
in microeconomic
Ruchi
demand is what and how much you want and what's your need...
Shikhar
desire is what and how much you want and what's your need..
Addai
how can one be so with economics even while you have less knowledge in mathematics.
OKORO Reply
why is it that some products increases everyday by day
Chiamaka Reply
because demand is increase
Ruchi
because demand is increase
Patience
but how demand increases?
Aziz
Because of the Marketing and purchasing power of people.
AmarbirSingh
but how could we know that people's demands have increased everyday by day and how could we know that this is time to produced the products in the market. Is any connection among them
yaqoob
for normal good people demand remain the same if price of product will increase or not
Ruchi
see that some product which increases day by day is comes under normal good which is used by consumer
Ruchi
Seems hot discussing going here
Shamamet
If there are less products demand starts to increase for those products
Shamamet
Economics is really interesting to learn ....
Shamamet
see there is Inferior goods ands normal goods inferior good demand is rarely increase whereas as we talk about normal good demand will absolutely Increase whether price is increase or not
Ruchi
and demand for normal goods increase cause people's income as a while increases time to time
Abhisek
and it might also be that the cost of raw materials are high.
ATTAH
may be
Ruchi
obviously because demand is increasing.....and price is getting low.....
Shikhar
hmmm there is inverse relationship between demand and price
Ruchi
This is because the supply of those products in relation to raw materials are decreasing and they are also necessities. This crate shortage in the market, so sellers will rise the prices of those products.
Abdul
increase in price of product is as a result of increase in supply... according to law of supply
Nzubechukwu
Importance of economics
Odunayomi Reply
the nature and significance of economics studies
Deborah
What is demand
Shuaib Reply
deman is amount of goods and services a consumer is willing and able to buy or purchase at a given price.
Sainabou
the willingness and ability of a body to purchase goods nd servicesbis called demand ,so if she/has ability but doesn't have willingness it's not a demand same if she or he has willingness but doesn't has ability it's not a demand too
Gul
Demand refers to as quantities of a goods and services in which consumers are willing and able to purchase at a given period of time and demand can also be defined as the desire or willingness and backed by the ability to pay.
Fadiga
Yeah
Mathias
What is Choice
Kofi
Choice refers to the ability of a consumer or producer to decide which good, service or resource to purchase or provide from a range of possible options. Being free to chose is regarded as a fundamental indicator of economic well being and development.
Shonal
choice is a act of selecting or choosing from the numerous or plenty wants.
Fadiga
demand is want and it is also what you need and able to afford a particular period of time... because demand changes with time.
Ijeoma
Demand refers to the ability of the consumer to pay for a particular product at a given price
Abdul
this is the desire or willingness to purchase goods and services backed up with the ability to pày
Nzubechukwu
how does consumer make profit
Clifford Reply
by buying goods in bulk.
Ijeoma
Compare and contract the function of commercial bank and the central bank of Nigeria
Akwi Reply
what do think is the difference between overhead costs and prime cost
Abdoulkarim
what is economics
Mohamed Reply
economics is a social science that study's how resources can be used to produce goods and services for society
Nathan
Economic is a science which studies human behavior as a relationship between ends and scares means which have alternatives uses or purposes.
Fadiga
what is economics
Mohamed Reply
what is the basic economic problem
John Reply
rules
Buayadarat_Gaming
unlimited wants vs limited resources
Nathan

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Source:  OpenStax, Principles of economics. OpenStax CNX. Sep 19, 2014 Download for free at http://legacy.cnx.org/content/col11613/1.11
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