Is the natural rate fixed?

No; it shifts with demographics, labor market institutions, and technology.

Does full employment mean 0% unemployment?

No; it means unemployment is at its natural rate.

Natural rate of unemployment

📈 Economics By CampusDown Wiki Editorial Team Last updated October 26, 2026

The natural rate of unemployment is the jobless rate that persists even when the economy is at full strength, made up of frictional and structural unemployment.

Contents

1. Three kinds of unemployment
2. Phillips curve and NAIRU
3. FAQ
4. References

Three kinds of unemployment

Frictional unemployment comes from people between jobs or searching for a better fit; structural unemployment comes from mismatches between workers' skills and available jobs. Together they make up the natural rate. Cyclical unemployment, which rises in recessions, isn't included.

Phillips curve and NAIRU

In 1968 Friedman and Phelps argued that pushing unemployment below its natural rate with easy money works only temporarily; as expectations adjust, you just get accelerating inflation. 1970s stagflation backed them up, and the long-run Phillips curve became vertical at the natural rate. NAIRU, the non-accelerating inflation rate of unemployment, is a close cousin. Job training and better matching can lower it.

FAQ

Is the natural rate fixed?: No; it shifts with demographics, labor market institutions, and technology.
Does full employment mean 0% unemployment?: No; it means unemployment is at its natural rate.

Sources reviewed: 2026-10-26

References

Friedman, M. (1968). The role of monetary policy. American Economic Review, 58(1), 1–17.
Phelps, E. S. (1968). Money-wage dynamics and labor-market equilibrium. Journal of Political Economy, 76(4), 678–711.
Congressional Budget Office. Noncyclical Rate of Unemployment.

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This article was last updated on October 26, 2026. It is based on widely recognized original works and textbooks; when citing it in a paper, please check the original sources listed in the references.