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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

describe the producer's scarce resources.. I.e land,Labour,capital and enterprise
Alfhah Reply
What are human behaviour?
Regina Reply
how can you describe economic goods in a much better easier way?
Alfhah Reply
what is deman and supply
Aruna Reply
Demand can be defined as the ability and willingness to buy commodities in a given price of goods and services in a particular period of time
supply refers to the ability and willingness to offered commodities for sale in a given price of goods and services in a period of time .
Demand can refer to the ability and willingness to purchase a commodity at a giving price and time.
what must the producer do if total costs exceed total revenue
Mmusi Reply
raise price
scarcity resources sample
nawala Reply
what's scarcity
tumelo Reply
what are the two types of economic theory's?
Lizabeth Reply
i thick it is microeconomic theory and macroeconomic theory. or it can be normative and positive economic theories.
with diagrams show thé change in prices in thé different time period that can result in an increase in demande
Fankam Reply
define momentary period
What is a monopsony?
Allan Reply
monopsony is a situation where only one buyer is available in the market
And with many sellers?
to be more specific, oligopsony is a situation with many sellers but few buyers
Thank you
economic is tha process of banking
hashmat Reply
Pls can u explain it into details
Cause I don't understand what you are saying
brownies price is 5$ quantity demand is 5000$ supplied is 3000 if brownies are not taxed how many are consumed?
Fel Reply
what is unemployment
Rita Reply
ok so what would u say is supply in your own terms
Odessa Reply
why the demand curve is downwards sloping and supply upward sloping
Odessa Reply
the dd curve is downward sloping because consumers dd less when price is high and vice versa the ss curve is upward sloping suppliers are willing to produce more when prices are high
what is dead weight loss
when the prices of supplies slop upward then the prices of demand curve will increases downward

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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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