Chapter 8: Problem 43

Is it desirable to eliminate natural unemployment? Why or why not? Hint: Think about what our economy would look like today and what assumptions would have to be met to have a zero rate of natural unemployment.

Short Answer

Expert verified

In conclusion, eliminating natural unemployment is not desirable as it plays a crucial role in economic efficiency, growth, and development. Aiming for a zero rate of natural unemployment would lead to a stagnant economy with no room for adaptation or progress. Thus, maintaining a certain level of natural unemployment is essential for long-term prosperity and economic stability.

Step by step solution

Definition of Natural Unemployment

Natural unemployment refers to the long-term unemployment rate that exists in a healthy economy. It includes frictional unemployment, which occurs due to individuals changing jobs or entering the workforce, and structural unemployment, which arises from changes in industries or technological advances.

Effects of Natural Unemployment

Natural unemployment plays a role in maintaining a certain level of productivity, since frictional unemployment is associated with job searching and matching workers to suitable positions, and structural unemployment is a result of economic growth and technological advancements. These factors contribute to a more efficient and productive economy over time.

Zero Natural Unemployment

If there were zero natural unemployment, it would imply no frictional or structural unemployment. This would mean that there would be no job searching, no technological advancements, and that industries remain static. In practical terms, this would be unrealistic, as there will always be some people searching for new jobs, industries evolving, and new technologies arising.

Desirability of Eliminating Natural Unemployment

While it may seem ideal to have zero unemployment, eliminating natural unemployment is not desirable. It is important to have a certain level of natural unemployment for the economy to grow and adapt to changes over time. So, although having a low unemployment rate is generally considered as good for the economy, attempting to eliminate natural unemployment would hinder economic growth and innovation.

Conclusion

In conclusion, it is not desirable to eliminate natural unemployment, as it plays an essential role in maintaining economic efficiency, growth, and development. Striving for a zero rate of natural unemployment would result in a stagnant economy with no room for adaptation or progress. Therefore, having a certain level of natural unemployment is necessary for long-term prosperity and economic stability.