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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

What is economics?
Bubu Reply
by this time
Emmanuel
It is a social science that analyses production,distribution and consumption of goods and services
Emmanuel
A social science that study human behavior in relationship with decision making
Jessica
What are the typical patterns of GDP for a high-income economy like the United States in the long run and the short run?
mwangala Reply
What are the limitation and significant of macroeconomic
Usman Reply
explain the significance of concerpt of opportunity cost in planning
Mwanaid Reply
what is meant by the price elasticity of demand?
Martine Reply
What are the limitations of macroeconomic and their segnificant
Usman Reply
Discuss the role of competition in stimulating economic growth?
Daniel Reply
competition stimulate economic growth because in such types of economy,they is no monopoly power every supplier will want to produce to meet customers choice which brings about quality production and attract invested and customers into such economy
Koka
competition creates Monopoly because of economy of scale. it's not antithesis but different side of same coin
toko
competition result in high economic growth since every firm will intend to provide quality services and products to meet customers needs and requirements unlike in Monopoly situation where a firm just provide what it want to resulting in large stock piles of unwanted products ,ie inefficiency, howev
Mark
microeconomics study part of the economy but macroeconomic study the whole economy
Olokun Reply
studying the whole economy, solving the problem of the economy and building up the economy
Olokun
micro means small while macro means large
Olokun
standard of living is the footsteps of an economy because it plays important role for country to have crucial view about their budget ,import and export
Olokun
it will be differ because economic agent will only take their views on some part of household
Olokun
can opportunity cost be zero
OBED Reply
how many types of transportation do we have
Jacob
yes. when a customer's purchasing power is high, he may have d ability to purchase all he needs, dt makes opportunity cost zero
George
please can give more explanation on this question
OBED
what are the factors production
PETER Reply
Labour capital entrepreneurs
Leta
Land,capital, labour,and the entrepreneur
Tantoh
I will like to know use of calculus in economics
JHUMA Reply
do they use it in economics?
Pranav
I want to know if I should take calculus or statistics and probability my senior year of highschool
Yahir
yes for example in monopolistic competitive market..... TR=TC* & THIS CALCULATED BY CHANGING( DERIVATIVE LAW) MR =MC ** WILL BE THE FORMULA THAT USE.
Leta
please in which topic in economic is the question coming from.
Tantoh
from PCF in economics
Leta
why is unitary proportional to responsiveness
Etim Reply
any tip for igcse economics exam?pls
Stacey Reply
well
The
What is a market
Divine Reply
what are the variables that affect demand
Divine
what are the variables that affect demand
Divine
what are the variables that affect demand
Divine
what are the variables that affect demand
Divine
what are the variables that affect demand
Divine
price of the related goods 2 price of the given commodity 3 income of the consumer 4 taste and preference 5 expectation in the future price
John
pls the taste and preference
Nas
explain briefly
Nas
a consumer taste and preference commodity changes for a time the man becomes
John
sorry sorry
John
is when the price of a commodity becomes high and can't afford example Samsung instead of iPhone
John
consumers who have high intense for goods will purchase the goods even if the price of that commodity increases because he or she preferred that commodity.people will be prefer iphone as its price increase
Yussif
as usual bad taste of preference is when a consumer regrets from one commodity to another in terms of the price
John
thanks alot
Nas
you're welcome
John
#Preference; #Income #Test
Dereje
#price Of Commodity #Income #Taste #Preference
Dereje
#Market is The Place Where Buyers And Sellers Are Exchanging Their Goods And service. #
Dereje
difference between macro and micro economics
Lawrence
Microeconomic Study about individual consumers market But Macroeconomis Study General economic Process Such As #Aggregate Demand #Aggregate Supples #GDp= #GNp
Dereje
nice so can u run down a brife discussion on GDP
Lawrence
good
Chinex
pls can someone differentiate between the perfectly elastic, perfectly inelastic and unitary
yhar Reply
and then again pls what are the types of elasticity, the methods of calculating it thank u
yhar
Perfectly inelastic is when the coefficient is equal to zero Unitary is when the coefficient is equal to one But am not sure if we have perfectly inelastic
John
I'm kind off confuse abt the PED, IED and co are they the types of elasticity we've
yhar
Yh the types are price elasticity cross and income elasticity of demand
John
do we've specific formulaes to calculate for each of them
yhar
yes. PED. changes in quantity demanded divided by changes in price
Vealmurugan
so pls what's the general name given to unitary, elastic n inelastic ? are the names given to the final result after doing the calculations?
yhar
P2-P1÷P1×100or Q2-Q1×Q1×100 PED
John
***tutor2u.net/economics/reference/price-elasticity-of-demand
Vealmurugan
They are elasticity coefficient
John
@John I don't get u well pls
yhar
whichone
John
P2-P1÷P1×100or Q2-Q1×Q1×100 PED @john pls tis is what m talking abt
yhar
Yh is the formula for PED
John
Pls are you having a for PED
John
thank u very
yhar
dy
Jobang
what is economics
Tayyeb
economics is a science which studies human behaviour as a relationship between ends and scarce means which have alternative use
John
is a science which study human behavior as a relationship between ends and scarce means which have alternative uses
Divine
yes this is because economic provide a body of knowledge on human economic principles under theories and these theories can be verified with real world data using science method in other words it was scientific method in arriving at solution identification of problem or basic data collection among
John
unitary ElasticWhen Elasticty =1 Perfectily Elastic When 0<1 inelastic when 0>
Dereje

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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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