Question

How do Unions Affect the Natural rate of Unemploymement ?Discuss

Answer 1

Natural rate of unemployment consists of frictional and structural unemployment when the economy efficiently expanding in the long-run. Unions can increase both the elements of unemployment by making it less easier to find employment due to union membership, by holding artificially wages above market clearing wages, by reducing efficiency in the labour market by making it less easy to hire and fire worker, and generally by making it more difficult to adjust to chainging economic conditions. All these raise the natural rate of unemployment. Unions can lower structural unemployment by starting or facilitating job-trainging and job-retraining programs to improve worker skills in accordance with the needs of the industry and economy.