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Natural Rate Of Unemployment

 
     
  The natural rate of unemployment is a politician\'s and economist\'s phrase that raises hackles, yet means little more than the equilibrium rate. Like any equilibrium, it depends on the characteristics of its market and the behaviours of those supplying labour and those demanding it. If, for example, people become more selective about the jobs they will take, being prepared for longer spells of unemployment until they find out what they want, the equilibrium will tend to rise.

The notion of a natural unemployment rate is central to the debate about the Phillips Curve: is there a trade-off between inflation and unemployment? Monetarists (and others who would not call themselves that) answer no: any attempt to steer unemployment below its natural rate will produce not just higher, but accelerating, inflation. For this reason, the natural rate is sometimes known by the acronym NAIRU—the non-accelerating-inflation rate of unemployment. This makes the point that a market is not in equilibrium if the price it is setting (in this case the price of labour) is continuously accelerating. TF
 
 

 

 

 
 
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