Natural Rate Of Unemployment: Determinants
Economics notes
Natural Rate Of Unemployment: Determinants
➡️ Natural rate of unemployment is the rate of unemployment that exists when the economy is at its full employment level.
➡️ It is the rate of unemployment that is neither too high nor too low and is considered to be the ➡️normal➡️ rate of unemployment.
➡️ It is determined by the structure of the economy, such as the number of people entering and leaving the labor force, the number of jobs available, and the skills of the labor force.
What are the main determinants of the natural rate of unemployment?
The main determinants of the natural rate of unemployment include the level of wages, the structure of the labor market, the level of labor productivity, the level of economic activity, and the level of government intervention in the labor market. Additionally, demographic factors such as the age and educational attainment of the labor force can also influence the natural rate of unemployment.
How does the natural rate of unemployment affect economic growth?
The natural rate of unemployment affects economic growth by influencing the level of aggregate demand in the economy. When the natural rate of unemployment is low, aggregate demand is likely to be higher, leading to increased economic growth. Conversely, when the natural rate of unemployment is high, aggregate demand is likely to be lower, leading to slower economic growth.
What policies can be used to reduce the natural rate of unemployment?
Policies that can be used to reduce the natural rate of unemployment include increasing the minimum wage, providing job training and education programs, and reducing barriers to labor market entry. Additionally, fiscal and monetary policies can be used to stimulate economic activity, which can help to reduce the natural rate of unemployment.