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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

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The natural rate of unemployment is a barometer of a stable economy.

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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.

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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