Economics

The Natural Rate of Unemployment

• The natural rate of unemployment includes only frictional and structural unemployment, and not cyclical unemployment
• related to two other important concepts: full employment and potential real GDP
• Unexpected shifts in productivity can have a powerful effect on the natural rate of unemployment
• On the supply side of the labor market, public policies to assist the unemployed can affect how eager people are to find work
• On the demand side of the labor market, government rules social institutions, and the presence of unions can affect the willingness of firms to hire

The Natural Rate of Unemployment in Recent Years

The underlying economic, social, and political factors that determine the natural rate of unemployment can change over time:

• The Internet has provided a remarkable new tool through which job seekers can find out about jobs at different companies and can make contact with relative ease
• The growth of the temporary worker industry has probably helped to reduce the natural rate of unemployment
• The aging of the “baby boom generation”

Inflation

• Hyperinflation: an extremely high rate of inflation, in the 100s or 1000s percent per year
• Inflation: a general and ongoing rise in the level of prices in an economy

Table 1. Price Comparisons, 1970 and 2014

Items	1970	2014
Pound of ground beef	$0.66	$4.16
Pound of butter	$0.87	$2.93
Movie ticket	$1.55	$8.17
Sales price of new home (median)	$22,000	$280,000
New car	$3,000	$32,531
Gallon of gasoline	$0.36	$3.36
Average hourly wage for a manufacturing worker	$3.23	$19.55
Per capita GDP	$5,069	$53,041.98