Macroeconomics

6-1

Job Loss, Job Finding, and the

Natural Rate of Unemployment

Every day some workers lose or quit their jobs, and some unemployed workers

are hired. This perpetual ebb and flow determines the fraction of the labor force

that is unemployed. In this section we develop a model of labor-force dynamics

that shows what determines the natural rate of unemployment.

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P A R T   I I

Classical Theory: The Economy in the Long Run

The Unemployment Rate and the Natural Rate of Unemployment in the

United States

There is always some unemployment. The natural rate of unemploy-

ment is the average level around which the unemployment rate fluctuates. (The nat-

ural rate of unemployment for any particular month is estimated here by averaging

all the unemployment rates from ten years earlier to ten years later. Future unem-

ployment rates are set at 5.5 percent.)

Source: Bureau of Labor Statistics.