Unemployment can remain even when the economy is healthy and expanding. This lesson introduces the natural rate of unemployment and explains why workers moving between jobs create frictional unemployment.
The natural rate of unemployment is the unemployment rate that results from economic, social, and political conditions when the economy is neither in a recession nor booming. It is not a fixed law of nature: it can change as labor markets and society change.
All flashcards
Natural rate of unemployment
The unemployment rate associated with underlying economic, social, and political conditions when the economy is neither in a cyclical boom nor a recession; it can change over time.
Structural unemployment
Unemployment caused by a mismatch between workers’ skills or qualifications and those employers demand.
Full employment
A condition in which the actual unemployment rate equals the natural rate; some frictional and structural unemployment can remain.
Potential real GDP
The level of output an economy can sustain when labor and other resources are used at normal, sustainable rates.
Unemployment assistance and job search
Benefits can support households but may affect job-search incentives; job-search services and retraining can help people return to work.
Quiz questions
What causes structural unemployment?Answer: A mismatch between workers’ skills and the skills or qualifications employers demand.
When is an economy at full employment?Answer: When the actual unemployment rate equals the natural rate, even if some unemployment remains.
If productivity growth slows unexpectedly while wages still reflect earlier, faster growth, what may happen?Answer: Labor demand may grow more slowly, leaving excess labor supply and temporarily higher unemployment.
What can happen after unexpectedly fast productivity growth if wages adjust slowly?Answer: Labor demand can rise before wages adjust, temporarily pushing unemployment below the natural rate.
Which statement about U.S. unemployment insurance is accurate?Answer: It is a federal–state program, and receiving benefits is not required to be counted as unemployed.
Based on Principles of Economics 3e by Steven A. Greenlaw, David Shapiro, Daniel MacDonald (OpenStax), licensed CC BY 4.0. Adapted into a summary, flashcards and quizzes.