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MARGINAL FACTOR COST CURVE: A curve that graphically represents the relation between factor quantity and the marginal factor cost incurred by a firm for buying or hiring a factor of production. Marginal factor cost curve indicates how a firm's total factor cost is affected by hiring one more or one fewer worker. This curve is constructed to capture the relation between marginal factor cost and the factor quantity, holding other variables constant.
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                           NATURAL UNEMPLOYMENT: The combination of frictional and structural unemployment that persists in an efficient, expanding economy when labor and resource markets are in equilibrium. Natural unemployment exists when the economy is at full employment, which for practical purposes is defined as the condition in which the quantity of resources demanded is equal to the quantity of resources supplied. Most important for policy purposes, natural employment exists with stable prices, that is, no inflation. Frictional and structural unemployment are considered natural bi-products of a healthy, expanding economy. While they can be reduced through improved information, training, and education, total elimination is probably undesirable and likely impossible. The inherent tendency for an economy to have some degree of frictional and structural unemployment gives rise to the notion of natural unemployment.In principle, full employment exists when all resources (especially labor) are fully engaged in the production of goods and services, that is, full employment puts the economy ON the production possibilities frontier. However, in practice and in terms of macroeconomic policy, full employment is best viewed as the condition that exists after cyclical unemployment has been eliminated by preventing or correcting business-cycle contractions. This leaves frictional and structural unemployment (ignoring the seasonal variety which is largely irrelevant to macroeconomic policy). When policy makers use the term full employment, they do not mean that absolutely everyone one has a job at any given moment. What they mean is that cyclical unemployment has been eliminated. What remains are frictional and structural unemployment that is a natural part of the economy. With the labor and other resource markets in equilibrium, there is no pressure for wages or other resource prices to change. If resource prices remain stable, then production cost and output prices remain stable. In fact one of the more important policy aspects is that natural employment can persist with NO inflation. A few observations about natural unemployment are order: - One, natural unemployment is the combination of frictional and structural unemployment. The economy will always have some degree of frictional and structural unemployment.
- Two, frictional and structural unemployment do not result from the lack of available jobs, only from the problems of getting workers and jobs together. In other words, the quantity demanded equals the quantity supplied. Natural unemployment is thus, from a practical viewpoint, considered synonymous with full employment.
- Three, because the demand and supply quantities are equal, there is no pressure on factor prices (wages) to change. As such, natural unemployment can be sustained with no changes in inflation. The same cannot be said about cyclical unemployment.
- Four, because natural unemployment can be sustained without affecting inflation, it provides an excellent target for macroeconomic stabilization policies. Policies that achieve and maintain ONLY natural unemployment essentially eliminate ALL business-cycle instability.
Because of the policy importance of natural unemployment, a significant amount of controversy exists over the actual level, as measured by the unemployment rate. Some economists and political leaders contend this rate in the range of 6 percent. Others contend it is lower, 5.5 percent, 5 percent, or even less.The appropriate natural unemployment is not simply a high-brow, academic discourse among pointy-headed economists either. If the economy has reached the natural unemployment level, then the government need take no further action to move it lower. Doing so, in fact, would trigger inflation. However, the difference between 6 percent and 5 percent unemployment in the U.S. economy is well over a 1 million workers. This corresponds to almost $300 billion worth of goods and services. "Settling" for a higher natural unemployment rate that actually includes some cyclical unemployment, at the very least, condemns these workers to temporary hardships and prevents the rest of the economy from enjoying a few hundred billions dollars worth of production.
 Recommended Citation:NATURAL UNEMPLOYMENT, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2023. [Accessed: June 6, 2023]. Check Out These Related Terms... | | | | | | | | | | | | | Or For A Little Background... | | | | | | | | | | And For Further Study... | | | | | | | | | | | | | Related Websites (Will Open in New Window)... | |
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YELLOW CHIPPEROON [What's This?]
Today, you are likely to spend a great deal of time watching infomercials trying to buy either a flower arrangement in a coffee cup for your father or a how-to book on meeting people. Be on the lookout for small children selling products door-to-door. Your Complete Scope
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Lewis Carroll, the author of Alice in Wonderland, was the pseudonym of Charles Dodgson, an accomplished mathematician and economist.
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"I've always believed that if you put in the work, the results will come. I don't do things half-heartedly. Because I know if I do, then I can expect half-hearted results. " -- Michael Jordan, basketball player
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ILO International Labor Office
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