Types of Unemployment Frictional unemployment that arises from normal labor market turnover (entry, re-entry, etc.) Affected by UI generosity, demographics Structural unemployment created by changes in technology and foreign competition that change the skills needed to perform jobs or the locations of jobs Cyclical Fluctuating unemployment over the business cycle Temporary loss of jobs associated with a recession Natural Rate of Unemployment The unemployment rate when the economy is at ?full employment? has only frictional and structural unemployment, no cyclical unemployment Natural unemployment rate in 1980s was thought to be around 6%; thought to be around 5% in 1990s and 2000s. Decline in natural rate due to changing demographics Baby boom Entry of women into labor market Real GDP and Unemployment Potential GDP is the quantity of real GDP produced when the economy is at full employment When the unemployment rate equals the natural rate Output Gap = Real GDP ? Potential GDP
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