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The Natural Rate of Unemployment over the Past 100 Years
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The Natural Rate of Unemployment over the Past 100 Years

Regis Barnichon and Christian Matthes
FRBSF, 2017
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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.

Take-Aways

  • US policy makers can determine the health of the labor market based on inflation and output. Central to this analysis is the concept of the natural rate of unemployment, or “u-star.”
  • Calculating u-star, however, is problematic because it is an approximation as opposed to a data point that analysts can directly measure.
  • Economics professionals most commonly construct their models for u-star using the Phillips Curve, but external shocks, like wars and depressions, can distort the curve.

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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