Question

What forces create the natural rate of

unemployment for an economy?

Short answer

the long term trends of unemployment are determined by Natural rate of unemployment which reflect structural and frictional unemployment.

Step-by-step solution

Step 1. Introduction

natural rate of unemployment is determined by long term trends of economy. It occurs when economy is in steady state of 'full employment' but proportion is still unemployed. 'Full employment' does not mean 'Zero unemployment'. It reflects to type of unemployment:

Step 2. Structural unemployment

Major factor of natural rate of employment is structural unemployment. It is type of employment where person is jobless and lacks skills which are required or in demand in labor market.

Advancement in technologies have created the demand for high-skilled workers and decreases the demand for low-skilled workers.

Step 3. Frictional unemployment

In market economy there are both type of companies doing bad [firing and laying offs] and good[ looking for more workers to hire] for various reasons. Process of leaving one job and finding or joining new job takes time.

As workers move between jobs, the unemployed created as a result is known as frictional unemployment.