Natural Rate of Unemployment

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Natural Rate of Unemployment

When national income changes, the amount of employment and that of unemployment change as well. Unemployment follows a cyclical path, increasing during times of recession and decreasing in times of business expansion. The unemployment rate does not, show any important long-term trend over time.
In macroeconomics, scholars name between the natural rate of unemployment made up by frictional and structural unemployment and the rate of cyclical unemployment. The unemployed are those who are without jobs and those who are searching for jobs. The unemployed are often measured as numbers of persons and sometimes as rates, expressed as percentages of the total labor force (Mishkin, 1995).
Over the decades, the economy has accumulated a net increase in new jobs fast enough to employ the high rising number of so-called potential workers. As a result the unemployment rate, which is the differ-ence between the labor force and employment, expressed as a percentage of the labor force has not increased decade by decade. The unemployment rate does change from year to year, because changes in the labor force are not exactly similar to changes in employment. On the supply side, the labor force has grown practically every single year since the end of the World War II in 1945. The causes have been a rising population, which causes increased entry into the labor force of people born in Europe 15 to 25 years previously; increased labor force involvement by many groups, especially women; and immigration of working-age people (Snowdon et al, 1994). On the demand side, many already existing jobs are overturned every year, and many new jobs are created. Economic growth causes some factors of the econ-omy to fall, and others to rise and expand. Jobs are ruined in the sectors that are contracting. Jobs are created and made in the expanding sectors. Additionally, even in established industries, many firms die and many new firms are...