Question

What is the natural rate of unemployment? Explain how the different types of unemployment that are included in such rate differ from each other.

Answer 1

The natural unemployment rate is a mixture of frictional, systemic, and surplus joblessness. Even a stable economy would have this degree of unemployment because workers often come and go and try better jobs. This jobless status is the normal rate of unemployment, before they find the new job. Natural unemployment is the minimum rate of unemployment that is due to natural or voluntary economic powers. It reflects the number of people who are unemployed due to the labor force system, including those who have been displaced by technology or those who lack the skills required to get hired. Natural unemployment continues due to labor market flexibility which allows workers to flow to and from companies

Structural Unemployment- This form of unemployment is broadly characterized as unemployment resulting from the perceived value and skills that an employee brings to work against the required, specific skills that an employer needs to do the job properly. After all, work skills are evolving, and new skills replace existing, yet ageing skills that an employer no longer needs. Employers need some new skills to thrive in the marketplace.

Cyclical Unemployment- Cyclical unemployment is close to structural unemployment in that the business cycle is always extremely complex, and is constantly evolving. When the economy is on the upswing, more employees are employed by businesses, and the rate of unemployment is increasing. In comparison, as the economy spirals downward, unemployment rises when firms let jobs go and quit recruiting at an increased pace, as they would in stable economic times.

Frictional Unemployment- Short-term factors involved in figuring out the nation's unemployment rate come under the term "frictional unemployment." This type of unemployment relates to the unemployment rate rising upward as skilled professionals move between jobs for a variety of reasons, including: employees rising to another state, region or region searching for new jobs. Staff leaving their jobs with the intention of seeking a new one.
College graduates with advanced degrees who continue to work when they have a new career related to their studies after receiving a post-graduate diploma.