Economics – Employment/unemployment | e-Consult
Employment/unemployment (1 questions)
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The natural rate of unemployment is comprised of three main components:
- Frictional Unemployment: This arises from the time it takes for workers to find new jobs after leaving a previous one, or for new workers to enter the labor market. It's a natural part of a dynamic economy and is generally considered beneficial as it reflects workers searching for better matches.
- Structural Unemployment: This occurs when there is a mismatch between the skills of the workforce and the requirements of available jobs. It can be caused by technological changes, shifts in industry demand, or geographical immobility of workers. Addressing structural unemployment often requires investment in education and training.
- Cyclical Unemployment: This is unemployment caused by fluctuations in the business cycle. During recessions, demand for goods and services falls, leading to reduced production and job losses. Cyclical unemployment is the most volatile component of the natural rate.
The natural rate is the sum of these three components. Changes in any one of these components will affect the overall natural rate.