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As we’ve learned, a third market – the Labor Market – typically does not reach an...

As we’ve learned, a third market – the Labor Market – typically does not reach an equilibrium where supply of labor equals demand for labor. What do we call the “normal” unemployment rate that persists even when wages have [incompletely] adjusted?

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An economy would still have some unemployed people even when the labor market is in equilibrium. When the labor market is in equilibrium, this means there is no cyclical unemployment. However, there will still be some level of structural and frictional unemployment. This type of unemployment is called natural rate of unemployment which consists of structural and frictional unemployment. Structural unemployment takes place when the unemployed don't have the requisite skills for the available jobs. Frictional unemployment takes place when a person becomes temporarily unemployed while switching from one job to another.

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