Custom «Equilibrium Unemployment» Essay Paper Sample

Equilibrium Unemployment

Riley (2006) explains that Equilibrium unemployment rate is described as unemployment's natural rate, that is, the rate of unemployment in which real wages meets their free market level other than aggregate labour supply balancing with aggregate labour demand. During the natural rate, all individuals wiling to work at prevailing genuine wage rate will already be employment hence the assumption is that there is no involuntary unemployment. Due to the fact that some individuals stay out of a work looking for jobs giving higher real wages or better working conditions, some will exist some voluntary unemployment.

Most importantly it should be clearly understood that there are scores of economists who just dot not believe in the legitimacy of simple natural unemployment rate at a time when the labour market is at is at equilibrium and whenever the unemployment rate falls at a level steady with price inflation and stable wage. However, the proponents of this concept of natural rate are those economists believing in the markets' power to clear at equilibrium price together with those who observe labour market as any other market within the economy.

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All supply-side policies that can elevate the number of individuals willing to work and in a position to acquire employment within the labour market will move the labour supply curve towards the right, hence narrowing the gap.

The policies aimed at reducing the natural level of unemployment usually center on promoting the labour market's efficiency by eliminating the imperfections of the labour market. For instance, a government that wants to attain a lower employment's equilibrium rate can consider initiating activities such as carrying out reforms on the welfare benefits' system in order to curb the threat of poverty trap. Additionally, the government in question will have to reform the trade unions within its regions of business undertakings to reduce their combined bargaining power and decrease some of the obstacles to mobility of labour developed by associations and professional bodies that bring about the effect of restricting the labour supply into an occupation. Other policies include implementing a more calm approach to migration of labour and decreasing income tax to promote the incentives for searching and agree to paid work (Marijis & Hulleman, 2008).

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Generally, economist who are concur that the employment's natural rate can be decreased point out that government policies have to be with a view o making labour markets more flexible and competitive. To this effect, another strategy that the government can employ to decrease the natural rate of unemployment and improve employment is ensuring a flexible labour market (Riley, 2006). Consequently, there are two groups of individuals in the economy, the economically active, describing those actively looking for job or those working and economically inactive, who may give up on working after searching for jobs for a long time in vain, quit jobs for various reasons, go for early retirements among other reasons. To expand the supply of active labour and promote potential for long-term growth, the government has therefore to decrease the number of those inactive in the economy.

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Lastly, according to Marijis & Hulleman (2008), another strategy in which government can use to avert this situation is to heavily invest in human capital, a fact that will help rise employment and decrease unemployment. This is done by improving and upgrading the skills of individuals in a given country. This will go a long way to help curb the escalating rates of natural unemployment.

To sum up this discussion, it is important to understand that equilibrium unemployment is the unemployment's natural rate. Whether there is equilibrium in the labour market, there will still exist structural and frictional unemployment together with some levels of seasonal unemployment. Consequently, the main way of reducing this natural rate of unemployment is through policies within the supply-side labour market that promote incentives for work and re-skill the job seekers.

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