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MENTAL MODEL · M3536

Natural Rate of Unemployment

Natural Rate of Unemployment
BusinessHigh supportLabor Economics
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Version 1.0.0 · Updated 2026-07-30

CORE DEFINITION

A concept proposed by Friedman and Phelps, holding that there exists a 'natural' rate of unemployment determined by economic structure, including frictional and structural unemployment, which monetary policy cannot permanently reduce. Attempts to push unemployment below the natural rate will only lead to accelerating inflation.

SCAFFOLDING EFFECT

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Reduce cognitive load

Guides monetary policy positioning. Provides a theoretical basis for understanding the relationship between unemployment and inflation. In policy-making, it reminds policymakers to distinguish between cyclical and structural unemployment: monetary policy mainly addresses the former, while the latter requires structural reforms.

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Friedman and Phelps proposed that there exists a 'non-accelerating inflation rate of unemployment' (NAIRU) determined by structural and frictional factors. Under long-run monetary neutrality, unemployment returns to this level.

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Source support: Explicit

  • link
    en.wikipedia.orghttps://en.wikipedia.org/wiki/Natural_rate_of_unemploymentZH · Explicit
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