Natural Rate of Unemployment
The natural rate of unemployment is a concept in macroeconomics that refers to the rate of unemployment that exists when the labor market is in equilibrium. It is also known as the non-accelerating inflation rate of unemployment (NAIRU). The natural rate of unemployment is the rate of unemployment that is consistent with a stable rate of inflation. It is the rate of unemployment that is neither increasing nor decreasing over time.
The natural rate of unemployment is determined by the structure of the labor market, including the number of job openings, the number of job seekers, and the skills and qualifications of the job seekers. It is also affected by the level of wages and the level of job security. The natural rate of unemployment is not the same as the full employment rate, which is the rate of unemployment that would exist if all available workers were employed.
The natural rate of unemployment was first proposed by economist Milton Friedman in 1968. He argued that the natural rate of unemployment is determined by the structure of the labor market and is independent of the level of aggregate demand. This means that the natural rate of unemployment is not affected by changes in government spending or monetary policy.
Table of Comparisons
| Natural Rate of Unemployment | Full Employment Rate |
|---|---|
| Determined by the structure of the labor market | Rate of unemployment that would exist if all available workers were employed |
| Not affected by changes in government spending or monetary policy | Affected by changes in government spending or monetary policy |
Summary
The natural rate of unemployment is a concept in macroeconomics that refers to the rate of unemployment that exists when the labor market is in equilibrium. It is determined by the structure of the labor market and is not affected by changes in government spending or monetary policy. It is not the same as the full employment rate, which is the rate of unemployment that would exist if all available workers were employed. For more information about the natural rate of unemployment, you can visit websites such as Investopedia, The Balance, and the Federal Reserve Bank of St. Louis.
See Also
- Unemployment Rate
- Labor Force Participation Rate
- Labor Market Equilibrium
- Aggregate Demand
- Monetary Policy
- Frictional Unemployment
- Structural Unemployment
- Cyclical Unemployment
- Inflation Rate
- Full Employment
