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Natural rate of unemployment, Consequences of Unemployment - Coggle Diagram
Natural rate of unemployment
Definition
The Natural Rate of Unemployment (NRU) is the unemployment that exists when the economy is at full employment. It includes frictional and structural unemployment but excludes cyclical unemployment caused by economic downturns. The NRU represents the lowest sustainable level of unemployment an economy can achieve without causing inflation to rise.
Types:
.
Frictional → Short-term, workers changing jobs.
Structural → Skills mismatch due to tech or industry shifts.
Seasonal unemployment occurs when workers are unemployed at certain times of the year due to seasonal changes in demand, such as in agriculture or tourism.
Causes
Changes in technology.
Education gaps or lack of training.
Labor policies (minimum wage, benefits).
Geographical immobility.
Solutions:
Job training & education programs.
Encouraging labor mobility.
Reducing unemployment benefits to increase incentives.
Consequences of Unemployment
Economic consequences
Lower GDP → Fewer people working = less output.
Higher government spending → More on welfare & unemployment benefits.
Lower tax revenue → Fewer people earning = less tax collected.
Less consumer spending → Reduced demand slows economic growth.
Social Consequences
Increased poverty → Loss of income = lower living standards.
Higher crime rates → More economic hardship can lead to theft, fraud, etc.
Mental health issues → Stress, depression from job loss.
Social unrest → Strikes, protests, political instability.