Structural unemployment

Structural unemployment, also called the natural unemployment rate, is defined as a type of unemployment that appears due to changes in the economic situation, causing a dissonance between workers’ skills and the skills required in the labor market. Structural unemployment often appears as a result of prolonged stagnation in the business environment with... The presence of workers but without jobs, and the previous conditions negatively affect the workers. The concept of structural unemployment is linked to economic activity, as Milton Friedman and Edmund Phelps linked it in the sixties of the twentieth century, and this concept represents the unemployment rate that is compatible with total production at the long-term level, and this level It corresponds to aggregate production in the absence of temporary miscellaneous variations such as price changes, and thus the natural unemployment rate corresponds to the unemployment rate prevailing under the classical view of activity determination. This is determined primarily by the supply side of the economy, and hence production capabilities and economic institutions.

The theory of the natural rate of unemployment was developed in the 1960s, when it was observed that the relationship between inflation and unemployment began to collapse in the Phillips curve, where it was believed that there was a constant inverse relationship between inflation and unemployment. One of the effects of the prevalence of this belief is the belief that unemployment can be reduced through an expanded demand policy, and thus a rise in the inflation rate occurs.

 If there is a decrease in unemployment, some real variables in the economy, such as the real wage, could change permanently. This is as it should be because high economic inflation has relied on systemic irrationality in the labor market, and with real wages and unemployment left unchanged, wage inflation could eventually take over, and unemployment could decline, as long as both inflation declined. Wages and inflation expectations are better than actual economic inflation.

Leave a Comment

Your email address will not be published. Required fields are marked *

Connect with us
💬 Let us help you
Welcome 👋
How can we help you?