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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

Why is there unemployment in a labor market with

flexible wages?

Would you expect hidden unemployment to be higher, lower, or about the same when the unemployment rate is high, say 10%, versus low, say 4%? Explain.

Is the increase in labor force participation rates among women better thought of as causing an increase in cyclical unemployment or an increase in the natural rate of unemployment? Why?

While unemployment is highly negatively correlated with the level of economic activity, in the real world it responds with a lag. In other words, firms do not immediately lay off workers in response to a sales decline. They wait a while before responding. Similarly, firms do not immediately hire workers when sales pick up. What do you think accounts for the lag in response time?

Using the above data, what is the unemployment rate? These data are U.S. statistics from 2010. How does it compare to the February 2015 unemployment rate computed earlier?
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