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

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.

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.

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

Short Answer

Step by step solution

Definition of the term

Causes of Natural Unemployment

Implications of Natural Unemployment

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