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Chapter 7: Problem 22

What term describes the remaining level of unemployment that occurs even when the economy is healthy?

Short Answer

Expert verified
The term that describes the remaining level of unemployment that occurs even when the economy is healthy is "natural unemployment" or "full-employment unemployment." This type of unemployment consists of frictional and structural unemployment and is considered a natural and unavoidable part of a dynamic economy.

Step by step solution

01

Definition of the term

The term we are looking for is "natural unemployment" or "full-employment unemployment." This refers to the level of unemployment that exists even when the economy is operating at its potential or 'healthy' level.
02

Causes of Natural Unemployment

Natural unemployment is the sum of frictional and structural unemployment. 1. Frictional Unemployment: This type of unemployment results from workers voluntarily changing jobs, searching for better opportunities, or entering/re-entering the labor force. It's considered inevitable and normal in a dynamic economy, where changes in demand and supply of labor constantly occur. 2. Structural Unemployment: This type of unemployment arises when there is a mismatch between the skills of workers and the skills required for available jobs. This can occur due to changes in technology, shifts in the composition and structure of industries, or regional differences.
03

Implications of Natural Unemployment

Natural unemployment is a natural and unavoidable part of an economy. It suggests that at any given time, there will always be some level of unemployment due to the abovementioned factors. It's important for policymakers to distinguish between cyclical unemployment (which results from fluctuations in the economy) and natural unemployment when developing policies and strategies to address unemployment. Efforts should be made to minimize the negative impact of natural unemployment, focusing on improving job matching, skills development, and regional economic policies.

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Most popular questions from this chapter

How do you calculate the unemployment rate? How do you calculate the labor force participation rate?

Assess whether the following would be counted as "unemployed" in the Current Employment Statistics survey. a. A husband willingly stays home with children while his wife works. b. A manufacturing worker whose factory just closed down. c. A college student doing an unpaid summer internship. d. A retiree. e. Someone who has been out of work for two years but keeps looking for a job. f. Someone who has been out of work for two months but isn't looking for a job. 8\. Someone who hates her present job and is actively looking for another one. h. Someone who decides to take a part time job because she could not find a full time position.

What happens to the unemployment rate when unemployed workers are reclassified as discouraged workers?

Unemployment rates have been higher in many European countries in recent decades than in the United States. Is the main reason for this long-term difference in unemployment rates more likely to be cyclical unemployment or the natural rate of unemployment? Explain briefly.

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.
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