Question

Cyclical unemployment and the natural rate of unemployment are sometimes hard to distinguish from each other, so economists are not very confident about estimates of the natural rate of unemployment. Still, since unemployment rates are consistently higher in Canada and most Western European countries than in the United States, it appears that the natural rate of unemployment is lower in the United States. What might explain this difference?

Answer 1

Answer : Basically, Natural rate of unemployment is consists of fricitional as well as structural unemployment where as cyclical unemployment means when the economy goes into the recession phase it is resulted in decrease of jobs or there is a flucation in the business cycle.

It is true to said that unemployment rate in canada and western european countries are more than USA because it appears that natural rate of unemployment is less than the cyclical unemployment. The reasons are :

• Fricitional unemployment is more in canada and western countries than in US because there are vast sectorial shift and it required time to make perfect match between employee and employer.
• In western and canada countries the unemployment compensation and social insurance programmes are such high and attractive that employee feel no more interest for searching a job.
• Higher minimum wages are set up in western and canada countries so they are able to attract more productive workers but this lead to creation of natural rate of unemployment in the country.

CRUX : These are the reason that natural rate of unemployment is more in western countries and canada.