From the frictional and structural unemployment rates, compute the natural rate of unemployment: frictional rate plus structural rate, the 'normal' unemployment level when the economy is at full employment.
Input Data
Results
At a glance:The natural rate of unemployment is the sum of frictional and structural unemployment, representing the unemployment that persists at full employment.
Formula
naturalRatePct = frictionalRatePct + structuralRatePct
$$u^* = u_{\text{frictional}} + u_{\text{structural}}$$$$\text{Actual} = u^* + u_{\text{cyclical}}$$How to Use
- Enter the frictional unemployment rate.
- Enter the structural unemployment rate.
- Read the natural rate of unemployment.
FAQ
What is the difference between the natural rate and the actual unemployment rate?
The actual unemployment rate includes cyclical unemployment caused by short-term economic downturns, whereas the natural rate is the unemployment that remains even when the economy is at full employment (frictional plus structural). When actual unemployment is above the natural rate, it usually signals a weak economy with spare capacity; when it is below, the labour market may be overheating and pushing up wages and inflation.
Why can't the unemployment rate fall to zero?
Even in a healthy economy some people are always between jobs (frictional unemployment) or lack the skills or location match that employers need (structural unemployment). These flows are natural and necessary for a dynamic labour market, which is why the natural rate is typically a few percent rather than zero.
What causes the natural rate to change over time?
It shifts with labour-market institutions and demographics: stricter employment protection, more generous benefits, or a mismatch of skills can raise it; better job-matching technology, flexible wages, and training can lower it. An ageing population and changing industry mix also move the natural rate.
How is the natural rate used in policy?
Central banks compare the actual rate with an estimate of the natural rate to judge slack in the labour market. A large gap suggests weak demand and room to keep rates low, while a small or negative gap warns of inflation pressure. Because the natural rate is unobservable, it must be estimated from data, so figures differ across models.
Is a lower natural rate always better?
Not necessarily. A very low natural rate can reflect a flexible, efficient labour market, but it can also reflect insecure work or weak worker protections. The right level depends on the trade-off a society accepts between job security and hiring flexibility, so the rate itself is a description, not a target to minimise.
References
Content review: Calculatorism Finance Team. Results are for reference only; please refer to the relevant authorities for the official figures.