Economics » Unemployment » What Causes Changes in Unemployment over the Long Run

Key Concepts and Summary

Key Concepts and Summary

The natural rate of unemployment is the rate of unemployment that would be caused by the economic, social, and political forces in the economy even when the economy is not in a recession. These factors include the frictional unemployment that occurs when people are put out of work for a time by the shifts of a dynamic and changing economy and any laws concerning conditions of hiring and firing have the undesired side effect of discouraging job formation. They also include structural unemployment, which occurs when demand shifts permanently away from a certain type of job skill.

Glossary

frictional unemployment

unemployment that occurs as workers move between jobs

natural rate of unemployment

the unemployment rate that would exist in a growing and healthy economy from the combination of economic, social, and political factors that exist at a given time

structural unemployment

unemployment that occurs because individuals lack skills valued by employers


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