Unemployment Rate since 1960
This graph uses annual data on the U.S. unemployment rate to show the percentage of the labor force without a job. The natural rate of unemployment is the normal level of unemployment around which the unemployment rate fluctuates
The normal rate .of unemployment around which the unemployment rate fluctuates is called the natural rate of unemployment, and the deviation of unemployment from its natural rate is called cyclical unemployment. The natural rate of unemployment shown in the figure is a series estimated by economists at the Congressional Budget Office. For 2004, they estimated a natural rate of 5.2, only slightly lower than the actual unemployment rate of 5.5 percent. Later in this book, we discuss short-run economic fluctuations, including the year-to-year fluctuations in unemployment around its natural rate. In the rest of this chapter, however, we ignore the short-run fluctuations and examine why there is always some
·unemployment in market economies.