The Natural Rate of Unemployment

The natural rate of unemployment is not “natural” in the sense that water freezes at 32 degrees Fahrenheit or boils at 212 degrees Fahrenheit. It is not a physical and unchanging law of nature. Instead, it is only the “natural” rate because it is the unemployment rate that would result from the combination of economic, social, and political factors that exist at a given time — assuming the economy was neither booming nor in recession. These forces include the usual pattern of companies expanding their workforce, as they would in a booming economy, or contracting it, as they would during a recession. Also, keep in mind the social and economic forces that affect the labor market, or the public policies that affect either the eagerness of people to work or the willingness of businesses to hire.