What is natural rate of unemployment
The natural rate of unemployment is the level of unemployment that exists when the economy is operating at its potential, meaning that there is no cyclical or temporary unemployment. It is also referred to as the non-accelerating inflation rate of unemployment (NAIRU). The natural rate of unemployment is determined by structural factors such as demographics, skills mismatches, and institutional factors such as unemployment benefits and labor market regulations. It is considered an important indicator of the health of an economy and is used by policymakers to guide monetary and fiscal policies.
The natural rate of unemployment (also known as the non-accelerating inflation rate of unemployment, or NAIRU) is the unemployment rate that exists when the labor market is in equilibrium, and there is no cyclical unemployment. It represents the level of unemployment that is consistent with stable inflation rates.
The natural rate of unemployment is influenced by various factors, including demographic changes, labor market institutions, government policies, and technological advances. It can vary over time due to shifts in these factors.
Economists and policymakers study the natural rate of unemployment to understand the health of an economy and make informed decisions regarding monetary and fiscal policies.