Cambridge Business Association
The Natural Rate of Unemployment over the Past 100 Years
Report

The Natural Rate of Unemployment over the Past 100 Years

Regis Barnichon and Christian Matthes
FRBSF, 2017
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Recommendation

Economists are now studying whether the US economy has reached its natural rate of unemployment, or “u-star,” signaling the equilibrium of price and output in the long run. An unemployment rate below u-star may signal an overheating economy, while joblessness at a level higher than u-star could suggest labor market weakness. Researchers Regis Barnichon and Christian Matthes offer a robust alternative for estimating u-star, which currently points to a tightening labor market. getAbstract suggests this esoteric study to economists and analysts.

Summary

The concept of the natural rate of unemployment, “u-star,” is central to determining the health of the US labor market. U-star indicates the expected jobless rate when an economy’s prices are stable and its production is at a solid and sustainable pace for the long run. The statistic guides central bankers on how best to achieve their dual mandate of price stability and maximum employment. Calculating u-star, however, is problematic, because it is an approximation rather than a data point that experts...

About the Authors

Regis Barnichon is a research adviser at the Federal Reserve Bank of San Francisco, and Christian Matthes is a senior economist at the Federal Reserve Bank of Richmond.

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