natural rate of unemployment

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In Keynesian economics, the unemployment rate which would prevail in an economy with a constant rate of inflation. This is a function of various man-made institutional factors, including the extent of industrial monopoly, the social security system, minimum wage legislation, restrictions on mobility between occupations, and trade-union organization. All of these can be influenced by policy. At any time the natural rate of unemployment will also be affected by the past history of actual unemployment, if the effect of unemployment is to make people less employable. ‘Natural’ is used here to indicate that this unemployment rate cannot be permanently reduced simply by demand management: any attempt to do this will result in ever-rising inflation. It does not imply that this level of unemployment is either desirable or inevitable.

Subjects: Economics.

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