Is there a natural rate of unemployment?
June 17th, 2009 | Published in Economics idea | 2 Comments
Central banks have found that if they stimulate the economy too much, the result is increasing inflation. They have found that inflation begins to increase while a significant percentage of the workforce is still unemployed. This has lead to the belief that there is a natural rate of unemployment.
While significant rates of unemployment may be necessary to control inflation, I would hardly call them natural. I think it is unnatural for people who need things not to be able to work towards getting them. The only natural rate of unemployment I would agree with would be zero.
Instead of viewing persistent unemployment as natural, I think it should be viewed as a flaw in market economies. If there is no way to find work for everyone who wants it in market economies, the solution is to find a better economic system. It doesn’t make sense to me to label a problem as normal or natural and then dismiss it.
June 21st, 2009 at 2:44 pm (#)
Just the geographic imbalance between available employment and available workers will generate a significant unemployment rate. Jobs go begging even though there are workers wanting those jobs but are too far away to take advantage. This can be particularly noticable when the jobs require a greater degree of training or skill.
June 22nd, 2009 at 8:20 am (#)
ClydeB
You are right that there is a structural component of unemployment. People can end up with the wrong skills or be in the wrong place. It seems to me that there are two solutions to this problem. First, people can move or retrain. Second, the work can move to where the people are.
Either way, the problems can be addressed. The trouble, I think, is that our economy is too inflexible to sort out problems like structural unemployment.