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Chapter 21: Q 23. (page 524)

What forces create the natural rate of unemployment for an economy?

Short Answer

Expert verified

There are various different forces that create the natural rate of unemployment.

Step by step solution

01

Step 1. Definition

In an economy the workers may come and go and always look for a better job, the period of joblessness in which the workers are looking for a job is called the natural level of unemployment.

02

Step 2. Explanation

The natural rate of unemployment is created by frictional and structural unemployment.

03

Step 3. Components

Frictional unemployment is the period when a worker is chosen to leave their job in search of the new one and the workers join the workforce for the first time.

Structural unemployment is a type of involuntary unemployment which is caused due to the mismatch between the workers and skills required and this is also called the skill gap.

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Most popular questions from this chapter

Under what condition would an increase in the unemployment rate be a positive sign?

Under what condition would a decrease in

unemployment be bad for the economy?

What happens to the labor force participation rate when employed individuals are reclassified as unemployed? What happens when they are reclassified as discouraged workers?

Do you think it is rational for workers to prefer sticky wages to wage cuts when the consequence of sticky wages is unemployment for some workers? Why or why not? How do the reasons for sticky wages explained in this section apply to your argument?

After several years of economic growth, would you expect the unemployment in an economy to be mainly cyclical or mainly due to the natural rate of unemployment? Why?
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