Why is considered to be a "natural rate" of unemployment?

1 Answer
Jan 1, 2016

It is important to bear in mind that this concept - as well as many others in Economic theory - is pretty much this: theory.


In the case of the so-called "natural rate" of unemployment, the consensus lies on these two situations:

  • Frictional unemployment: that one that people experience during their transition to a new job, be it when they're looking for another one, or during the very bureaucratic procedures to leave a position and start in another one.

  • Structural unemployment: that one that people experience when a sector goes through fundamental changes, specially due to technological shifts. One good example is that one from the typewriters' industry: where did their empolyees go, once personal computers owned the market? Well, they faced, at first, a structural unemployment, as the industry that gave them jobs was being made redundant, but later on their abilities would surely fit a similar position elsewhere.

Just remarking: this is pure thoery. Of course there are economic policies made wrong or economic problems in general that might generate unemployment out of the two aforementioned categories, but that's another talk. The answer above comprises the technical definition of "natural unemployment".