Natural Rate of Unemployment.

The natural rate of unemployment is the rate at which unemployment in the labor market reaches equilibrium. Frictional, structural, and cyclical unemployment are all examples of natural rates of unemployment. Frictional unemployment happens when it takes time to find a new or different work. Structural unemployment arises when there is a mismatch between the skills available in the labor market and the labor force, whereas cyclical unemployment happens when there are less jobs available in the labor market relative to the labor force. While we strive to determine whether the natural rate of unemployment is truly natural, as the term implies, we will provide a macroeconomic perspective on it. Natural rate of unemployment in other words is the full employment levels of unemployment. So, natural unemployment levels attribute to normal unemployment levels which are inevitable in any country. The inevitability of this is because even in a country whose economy is operating at full capacity there will still be unemployment which is caused by supply. Therefore, we ought to agree that the natural rate of unemployment is natural because it goes far beyond the monetary policy influence.in the long run the rate of unemployment moves in its natural rate regardless the rate of an economy success or inflation (Abowd, 12).

Unemployment rates differ in countries. The difference is attributed by the varying degrees of union power, minimum wage labor ,collective barging and job training just mention a few(Abowd, 21). Unemployment levels have been key concerns in many countries but it’s notable that different countries are putting up different policies and measures to keep the levels of unemployment low. These polices include lowering of tax rates. It is clear that the levels of economic distribution all over the world are uneven and this is due to the facts that the levels of unemployment in countries differ (Abowd, 32). We may want to call this the law of nature where no country is equally gifted this brings about diversity.

The natural rates of unemployment can’t be lowered by monetary policies in the long run however cyclical unemployment can be temporary reduced by monetary policies. We have also appreciated the fact that countries are not equally economically gifted and thus different rates of unemployment.in conclusion we can clearly state that the natural rate of unemployment is caused by supply factors rather than demand factors.

References

Abowd, John, Tirupam Goel, and Lars Vilhuber. “Presentation: Assessing the Natural Rate of Unemployment.” (2013).