Natural rate of unemployment (1 Viewer)

[~ ReNcH ~]

I'm mildly confused by the types of unemployment that are included in the calculation of the natural rate. Afaik, only seasonal, structural, frictional and hard-core unemployment are included. However, textbooks often simply state that it doesn't include cyclical unemployment...but what of the hidden and long-term unemployed? I would have at least thought that the long-term unemployed be included since it's improbable that they will re-enter the workforce anytime in the future.

 

[d_a_n_z]

Natural unemployment is the rate at which all labour demanded is supplied; which means that all the employers with have all the workers they need. This is not 0...because the supply of labour is greater than the supply of jobs.
Cyclical unemployement is not included cyclical unemployment is during a recession, but if all labour demanded is supplied (natural rate) the economy will be growing...?
[ i think - but this might be wrong, this is just my understanding]

 

[~ ReNcH ~]

Well to my knowledge, the natural rate of unemployment coincides with the production possibility frontier i.e. there will always be a number of people who will never work, hence the unemployment rate can never be 0%.
However, what confuses me is that textbooks say that the natural rate simply excludes cyclical unemployment. But they then go on to say that it includes structural/frictional/hard-core/seasonal and that's it...but what about long-term and hidden unemployment?

 

[monique66]

Hmm...i've read that the natural rate of unemployent does not include cyclical or classical unemployment. However, with what you mentioned about 'long-term unemployment' and 'hidden' unemployment you have to recognise that hidden unemployment is not counted as unemployment as such by the government. Therefore it cannot be part of the natural rate of unemployment (ie. if someone isn't looking for a job in the first place or is looking for more work than they are not considered 'unemployed') as for long-term unemployment it can be seen that this category is just an offshoot of other categories (for example someone may be long-term unemployed due to structural problems or because of hard-core factors). So technically those that are long-term unemployed would be included in the natural rate of unemployment. Those two categories are mainly subsidery categories and you have to recognise that these form of unemployement overlap sometimes. Btw the textbook says that the natural rate of unemployment is around 6% but we are now lower than that and i was talking to economcis teacher the other day who mentioned that it was actually more like 5%...not sure if anyone cares but hey.

Interesting question though, gave me something to think about.

 

[~ ReNcH ~]

Good point damnation.
The only query I would have though is in regards to structural vs long-term unemployment. Though they overlap, do individuals "move" from one category to the other after 12 months? In other words, someone may be structurally unemployed but after 12 months are they then considered to be both long-term unemployed and structurally unemployed according to statistics or are they simply long-term unemployed?

 

[monique66]

i think long-term unemployed is just another category. For example if you are structually unemployed for over 12 months then you are still structually unemployed (but you also get classed as long-term unemployed) So with the natural rate when they refer to 'structural' unemployment and 'hardcore' unemployment they indirectly include long-term unemployment (actually long-term unemployed people are ususally structually unemployed) Don't worry about it to much, it just goes to show that the bos hasn't filled in some bits of the syllabus properly

 

[~ ReNcH ~]

lol ...and then when we complain about things to the BOS, they blame us for "misinterpreting" the syllabus...

 

[sunjet]

Good point damnation.
The only query I would have though is in regards to structural vs long-term unemployment. Though they overlap, do individuals "move" from one category to the other after 12 months? In other words, someone may be structurally unemployed but after 12 months are they then considered to be both long-term unemployed and structurally unemployed according to statistics or are they simply long-term unemployed?

Economists call it long term structural unemployment and short term cyclical unemployment. Long-term is unemployed after 52 weeks; 20% of total unemployment is long term unemployment, which is caused by structural changes.