Question

Suppose that in an economy, the rate of job separation is 0.01 per month and the rate of job finding is 0.08 per month. ...


Suppose that in an economy, the rate of job separation is 0.01 per month and the rate of job finding is 0.08 per month. Given these numbers, what is the natural rate of unemployment?

Answer

The natural rate of unemployment can be defined as the total of frictionally and structurally unemployed people.

Job separation is the rate which tells about the working people who lose their jobs each month while job finding is the rate in which the non working are able to find new jobs each month.

To ascertain the natural rate of unemployment:

ss+f

where s is the job separation rate & f is the job finding rate.

 

Natural rate of unemployment = ss+f= 0.010.01+0.08=0.010.09=0.1111=11.11%

Answer: 11.11%

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