Question

Explain the dynamics around the natural rate of unemployment.

Answer 1

- Explain the dynamics around the naturen sabe of unemployment. Ang- The natural rabe of unemployment is a combination of frictional, stou- ctural and susplus unemployment. Even a healthy economy will have this level going and looking of unemployment because workers are always coming and find that new job, is jobless status, untill they for better jobs. This the natural sale of unemployment. - unemployment is characterized by three distinct regimes of low, medium, and high unemployment and by a fast transition between them. Dimmic model that is able to explain this behaviour with multiple eami- librin. The model has only a small number of parsameless capturing the fund- amentals of labor markets and macroeconomic and institutional factors. The model is capable of generating unemployment dynamics that encompass the unique natural rate bypothesis, the structuralist hypothesis and the hystere- bis hypothesis. 1 Even in a healthy economy, there is some level of unemploy ment for three main reasonsi 0) Frictional unemployment - 1 Some workers are in between jobb. Enamples are new gra- duabes looking for their first job, or workers who move to a new boun without lining up another position. Some people quit abouptly, knowing they'll get a better hab shastly and other might decide to leave the workforce for Personal reasons such as retirement, Pregnancy or sickness. when they return - and start looking again, the BEA counts them as unemployed. ay structural unemployment in . As the economy evolves, there is an unavoidable mismatch between workers jab skills and employers needs. It happens when workers are displaced by technology, like when robots take over manufacturing Jabb. It also occurs when facbories more to cheaper locations structural unemployment remains untill workers receive new training. (ii) Susphes unemploymento This occurs whenever the government intervenes with minim wage contools. It can also happen with unions because employera the mandated wore while staying within their payroll budget. The only wan to do this is to let bome workeas go. It's the consequence of an unfunded mandate