Question

The natural rate of unemployment depends on factors that affect the behavior of both workers and firms. Make lists of possible factors affecting workers and firms that you believe are likely to influence the natural rate of unemployment.

Short answer

The economy may have an impact on workers and businesses because they may become demotivated if they are employed for an extended period of time and the impact of union activity, which may lead to higher salary demands.

Step-by-step solution

Step: 1 Introduction:

The problem of unemployment is the degree of unemployment that occurs when the economy's output is at its long-run maximum. It is the mean unemployment rate that the economy bounces around. The economy's productive potential and institutions play a major role in determining the natural rate of unemployment.

Step: 2 Components of natural rate:

True, the actual rate of unemployment is influenced by factors that influence both worker and corporate behaviour.

It's worth noting that the natural rate of unemployment has two key components:

Unemployment due to friction and Structured unemployment

Step: 3 Explanation of components:

The mutability of labour from one employment to another causes frictional unemployment.

Structural unemployment, on the other hand, is defined as joblessness induced by inefficient productivity.

Step: 4  List of factors affecting workers and firms:

Let us now go over the major influences on workers and businesses. Among them are:

- The economy may have an impact on workers and businesses because they may become demotivated if they are employed for an extended period of time.

- The impact of union activity, which may lead to higher salary demands.

- Laws limiting entrance into certain occupations, such as minimum wage laws.

- The level of unemployment is also impacted by the effectiveness of education and skills.

- Labor mobility due to salary disparities.